Backtesting The process of testing a trading strategy on prior time periods. Backtesting (or back-testing) is the process of evaluating a strategy, theory, or model by applying it to historical data. It can be used in situations like studying how a trading method would have performed in past stock markets, or how a model of climate and weather patterns would have matched … [Read more...]
How does Backtesting works ?
Backtesting: Interpreting the Past Backtesting is a key component of effective trading-system development. It is accomplished by reconstructing, with historical data, trades that would have occurred in the past using rules defined by a given strategy. The result offers statistics that can be used to gauge the effectiveness of the strategy. Using this data, traders can … [Read more...]
What is a Mini-Sized Dow Options?
Mini-Sized Dow Options is a highly leveraged index option on a futures contract in which the underlying index is the Dow Jones Industrial Average. The option has a multiplier of five, meaning that the option allows one to buy (for a call) or sell (for a put) up to five times the value of the DJIA. This allows one to profit from the option for a lower price than one would … [Read more...]
Globally Floored Contract
Globally Floored Contract is a guarantee found in structured investment products that provides a minimum payoff at maturity. A globally floored contract will protect the investor or minimize his loss in case the underlying investment loses its value. With principal-protected notes, an investor receives a guarantee providing downside protection on the investment. A cost … [Read more...]
Booking the Basis
A table or book of tables showing the yields of bonds at different interest rates and maturities. For example, if one is considering the purchase of a bond, one can take the coupon rate and the maturity and compare them in the basis book to determine the yield. The basis book is good for approximating yields, but financial calculators tend to be more accurate, especially for … [Read more...]