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acceptable
Attribute for the risk return relation of a model, see also weak or strong αacceptable
benchmark
A set of values which is used for comparison reasons. A stock index can be used as performance benchmark for an investment advisor performance track record. A High Watermark of a "buy & hold" strategy in a currency market can be used as benchmark for currency hedging.
CMTP
Abbreviation for current model trade profile: the name of the database with all closed trades a model has generated after model release (see HMTP).
distance of MDD date vectors
Vector of absolute differences of MDD dates of corresponding intervals
distance of MDD depth vectors
Vector of absolute differences of MDD depths of corresponding intervals
diversification
Different attributes of models in respect to technology, correlation, signal time stamp, input data, price driven and time driven Diversification Benefit
Diversification Benefit
Measure used to rate the diversification quality of a portfolio:
avg (MDD(models))  MDD(portfolio)
drawdown
Difference of model performance and model High Watermark, (synonym for retracement)
entry efficiency
Relation of trade entry price to the minimal open balance of a trade.
event driven
Characteristic of a strategy with predefined events (in connection with input price behaviour) and corresponding timestamps where signals can be generated.
exit efficiency
Relation of trade exit price to the maximal open balance of a trade.
expectation values
Values created from the HMTP to generate model performance estimates for specific market situations.
High Watermark
Minimal monotone ascending line above model performance graph.
HMTP
Abbreviation for historic model trade profile: the name of the database with all closed trades of all tests a model has passed in the validation process (see CMTP).
long, medium and short term
Different model trade frequencies used for diversification in portfolio construction.
market volatility
Market volatility measures the size and speed of market price changes. Market volatility is used as benchmark for model volatility.
maximum drawdown
Single risk measurement number which denotes the greatest difference of model performance and model High Watermark.
model
Strategy that is realized in a financial market: all strategy parameters have been set to fixed values
model correlation
Measure used for diversification in portfolio construction.
model release
Model release denotes the decision that a model has passed all tests and has been accepted for trading.
A released model is stable and robust with an acceptable risk return relation.
model trade
A model trade is either a long or short closed trade. It is the smallest unit used in model risk analysis.
model validation
The process starting from model construction until model release is called model validation.
model volatility
Model volatility measures the size and speed of model performance changes
portfolio construction
The process of building a portfolio out of different released models
price driven
Characteristic of a strategy with a set of predefined time intervals: at the end of each interval price levels are generated which are valid for the next time interval and used for trading action when levels are touched by market
released model attributes
acceptable, stable, robust
retracement
Synonym for drawdown
risk
When talking about the unknown future of an investment, the term "risk" is used to connote the uncertainties of performance development, the danger of unfavorable market moves and of unrealized and realized losses. Several measures have been defined to calculate risk.
risk return ratio
Measures the ratio of risk to return; it depends on the measures used for risk and return. For short calculation periods with negative returns a ratio cannot be used for simple rankings.
robust
A model is called robust when this model generates acceptable results for different financial markets.
rolling annual GpA vector
Vector generated out of the accumulated overall performance vector: for all 1 year performance intervals (shifted 1 day from start to end) the GpA values are calculated and stored in a vector
rolling annual MDD date vector
Vector generated out of the accumulated overall performance vector: for all 1 year performance intervals (shifted 1 day from start to end) the MDD values are calculated and the date of the MDDs are stored in a vector
rolling annual MDD depth vector
Vector generated out of the accumulated overall performance vector: for all 1 year performance intervals (shifted 1 day from start to end) the MDD values are calculated and stored in a vector
single market portfolio
Result of a portfolio construction process: all released models for 1 market are taken into account, these models are checked for diversity to construct a portfolio with high Diversification Benefit and a good risk return relation.
stable
A model is called stable when similar model inputs generate similar model results.
strategy algorithm
A strategy algorithm is a formula with parameters which uses market price data as input and generates trading signals as output. The structure of such algorithms is topic for the strategy construction process.
strategy parameter
There are two types of parameters: parameters that have to be set by analysis (optimization) and parameters that adapt themselves to market conditions. Too many parameters which have to be optimized increase the risk of model overfitting.
strength weakness profile
The strength weakness profile of a model evaluates all tests a model had to survive. It describes the market phases where the model performs well and those where it performs badly. For such phases expectation values for performance and risk are calculated
strong αacceptable
A model is called strong αacceptable when ((GpA))  α*((MDD))≥ ((0)) for some α > 0, where ((GpA)) denotes the rolling annual Gain per Annum vector, ((MDD)) the rolling annual maximum drawdown vector of this model and ((0)) the Null vector time driven
Characteristic of a strategy with a set of predefined (intraday, daily, weekly) timestamps where signals can be generated
technical analysis
Technical Analysis is a systematic approach to manage open positions established in any financial market. The systematic management is based on past data of this market. In many books Technical Analysis is defined as an analysis discipline for forecasting the direction of prices.
time driven
Characteristic of a strategy with a set of predefined (daily, weekly) timestamps where signals can be generated.
trading signal
A trading signal is defined by an action (buy long, sell short, buy neutral, sell neutral), a timestamp, a market price, and the volume that has been traded.
weak αacceptable
A model is called weak αacceptable when GpA  α * MDD ≥ 0 with some α > 0, where GpA denotes the Gain per Annum and MDD the maximum drawdown of this model calculated for the total period.

Capability tests
Ongoing tests to widen the model strength / weakness profile 
Diversification Benefit
Measure to evaluate the quality of portfolio construction as difference of average models MDD and portfolio MDD 
Riskadjusted performance
Measure which combines model performance and model risk into a single number (GpA  α * MDD) with α > 0 
GpA
Gain per Annum: average model performance per year calculated from model performance 
((GpA))
Vector of GpA values that are calculated for each rolling annual performance period (shifted by 1 day) 
Open position
Managing an open position: Point of origin for the construction of a technical trading strategy 
Market risk
Risk numbers for a market calculated via the buy and hold strategy 
Model quality control
Process which controls model performance after its release related to current market behavior and past model performance 
Model robustness
Model quality: robust models are acceptable in different markets 
Model stability
Model quality: similar inputs generate similar outputs 
Model volatility
Measure to quantify the strength of market price fluctuations 
Diversification
Important aspect of pairs of models when constructing a portfolio 
Strength/weakness profile
Model profile derived from the database of all model tests a model had to pass through before being released 
Model optimization
Part of model construction: analysis and determination of parameters to enable model application to a Financial Market 
Maximum drawdown / MDD
Measure to quantify the risk of a model / portfolio as the maximal distance of the model/portfolio performance to its High Watermark 
Model risk
Often reduced to MDD; generally MDD, model volatility, and yearly model return fluctuations 
Model High Watermark
Minimal non descending performance line above model performance 
Benchmark
Measure to evaluate an investment: performance of the underlying market or a model High Watermark 
Model acceptability
Model quality in relation to model performance and risk 
Market volatility
Measure to quantify the strength of market price fluctuations 
((MDD))
Vector of MDD values that are calculated for each rolling annual performance period (shifted by 1 day) 
Model validation
Process which determines the steps a model has to survive to be called reliable 
Trading strategy
A set of rules which determines the timing when to enter or exit a Long or Short position in a Financial Market 
Model performance
Complete history of realized and unrealized model returns, often reduced to daily values 
Vector distance measure
Measure to quantify the diversification of models via the distance of vectors like ((GpA)) or ((MDD)) 
Technical Analysis
Term used for a variety of algorithms and tools to analyze prices and volume of Financial Markets to forecast the direction of prices (standard definition)