[R-SIG-Finance] Evaluating equity curves

[R. Vince]

Brian,

Isn't any stream of cumulative returns, de facto, an equity curve? Or am I 
misunderstanding this? Thanks, Ralph Vince

----- Original Message ----- 
From: "Brian G. Peterson" <brian at braverock.com>
To: "Aleks Clark" <aleks.clark at gmail.com>
Cc: <r-sig-finance at stat.math.ethz.ch>
Sent: Sunday, October 11, 2009 8:46 PM
Subject: Re: [R-SIG-Finance] Evaluating equity curves


> 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
>
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