NumXL - Case Studies

Financial Time series Analysis

Strategy returns and P&L

White paper Discussion Forum Financial Model

Developing a trading strategy is an itertative process; it begins with forming few trading ideas, back-testing, and drawing conclusions or forming new ideas and starting over. This paper discusses the back-testing process of the strategy; we demonstartes the steps, issues and assumptions made during the preparation of the data sample and the calculation of the hypothesized startegy's returns. Finally, we turn our attention to risk aspect of the strategy and application within an established trading environment with common risk management policies.

Futures returns and P&L

White paper Discussion Forum Financial Model

Exchange-listed futures are an important part in many active strategies; they offer leverage, efficient access to illiquid physical markets, and risk management tool. In this paper, we illustrate the issues related to incorporating futures in our strategy (e.g. Contract specifications, Margin requirements, contract size, leverage, mark-to-market, etc.). Finally, we define return on margin and compute strategy's P&L and maximum P&L draw throughout the holding period.

Buy LO & Sell HI: Optimal strategy

White paper Discussion Forum Financial Model

The optimal trading strategy is to buy at the low and sell at the high. This is easier said than done, and many of us invest lot of effort building various strategies that try to mimic the ultimate strategy. In this paper, we construct this hypothetical optimal strategy, analyze its returns and construct an econometric model to capture its time dynamics. Next, using the model, we forecast the conditional returns and compare them with returns of actual strategies. Finally, we discuss their application in stop-loss optimization for actual trading strategies

GARCHⁱ modeling with Leptokurtic Innovations

White paper Discussion Forum Financial Model

This paper explores the problems of testing and estimation of GARCH/EGARCHⁱ models with a particular emphasis on the impact of the innovations distribution assumption. We conduct our investigation using S&P 500 daily log-returns sample data.