Backtesting trading strategies on simulated data in MATLAB

Contributors: Sandra Ng, Chris Chia, and Pearl Yuan

Timeline of Development

Complete List of Literature References

Currently Implemented / Work in Progress

Model Free

• one_over_n.m - one-over-n (in units of each asset held)
• proportional - one-over-n (in proportions)

Portfolio Optimisation

• mean_variance.m - standard Markowitz Mean-Variance Portfolio Optimisation
• ridge_shrinkage.m - Add lambda I to estimated covariance matrix and applying quadratic optimisation
• pca_optimisation.m - Construct covariance matrix from PCA factors, and use in quadratic Optimisation
• ledoit_wolf.m - Ledoit and Wolf's Quadratic Shrinkage estimator
• mean_correlation.m - Risk parity approach, using correlation matrix instead of covariance

Risk Parity

• volatility_weighted.m - Inverse volatility weighted
• hierarchial.m - Hierarchial Risk Parity

Downside Risk Measures

• semicovariance.m - Risk Parity approach using semivariance (as a quadratic optimisation problem)
• cvar_optimisation.m - CVaR portfolio optimisation as a linear programming problem
• mad_optimisation.m - MAD portfolio optimisation as a linear programming problem

Momentum

• current_price_weighted.m - current price-Weighted Strategy
• macd.m - allocate weights based on MACD oscillator
• classification.m = allocate weights based on prediction of sign
• reg.m = allocate weights based on prediction of returns

Online

• exp_grad_proj.m - exponential gradient, projective update
• exp_grad_mult.m - exponential gradient, multiplicative update
• exp_grad_max.m - exponential gradient, expectation maximisation
• follow_leader.m - Follow the (regularised) leader

In Progresss / To Add

• Conditional Drawdown at Risk cdar_optimisation.m
• Entropic VaR

Code References

Sjöstrand, K., Clemmensen, L., Larsen, R., Einarsson, G., & Ersbøll, B. (2018). SpaSM: A MATLAB Toolbox for Sparse Statistical Modeling. Journal of Statistical Software, 84(10), 1 - 37. doi:http://dx.doi.org/10.18637/jss.v084.i10

• https://www.jstatsoft.org/article/view/v084i10

Ledoit, O. and Wolf, M. Quadratic shrinkage for lage covariance matrices.

• Corresponding code from: https://www.econ.uzh.ch/en/people/faculty/wolf/publications.html#9

Asset Allocation - Hierarchical Risk Parity

• https://uk.mathworks.com/matlabcentral/fileexchange/70186-asset-allocation-hierarchical-risk-parity

Mean Absolute Deviation

• https://github.com/FadyShoukry/MIE376-Robust-MAD

Libraries

• Statistics and Machine Learning Toolbox
• MFE-Toolbox
• MATLAB Econometrics Toolbox, Financial Toolbox
• https://github.com/dcajasn/Riskfolio-Lib
• https://github.com/microsoft/qlib
• https://github.com/AI4Finance-LLC/FinRL-Library
• https://uk.mathworks.com/matlabcentral/fileexchange/9061-risk-and-asset-allocation?s_tid=prof_contriblnk
• https://hudson-and-thames-portfoliolab.readthedocs-hosted.com/en/latest/utils/risk_metrics.html
• https://github.com/robertmartin8/PyPortfolioOpt
• https://cran.r-project.org/web/packages/parma/vignettes/Portfolio_Optimization_in_parma.pdf