[R-SIG-Finance] Evaluating equity curves

[Brian G. Peterson]

Aleks Clark wrote:
> As part of a project I'm working on that uses genetic algorithms to
> optimize trading parameters, I find myself seeking a way to evaluate
> the equity curve that results from a given set of trading rules. It
> seems to be an obvious area of research, so I was wondering what's
> available in R-land or just in the world of finance in general. I've
> poked around with splines as a way to express how 'nice' an equity
> curve is (steady upward rise as opposed to a "jagged" line), but I
> feel that there are probably better ways to do things...

Having worked both in quantitative trading and in more traditional asset 
management roles, I've never quite understood the artificial distinction 
between "equity curves" and any other kind of returns.  In my experience, all 
the usual performance and risk analysis tools (amply provided for in R) as well 
as attribution (e.g. Bacon, much of which is implemented in fPortfolio) are 
equally applicable to trading strategies as they are to more traditional 
investment.  Also see Pat Burns' paper on evaluatinfg trading strategies for 
additional ideas.

Regards,

   - Brian