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acceptable

Attribute for the risk return relation of a model, see also weak or strong α-acceptable

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 α-acceptable

A model is called strong α-acceptable 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 α-acceptable

A model is called weak α-acceptable 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.

 
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