by Amir E. Khandani, Andrew W. Lo
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Start with the foundations, then use the reading focus to connect the paper to further study.
Use only information available at the simulated decision time.
Separate model selection from the final evaluation.
Represent losses as a distribution rather than one forecast.
Distinguish a loss quantile from the average loss in the tail.
Reconcile signals, executions, positions and P&L.
Include the costs that can erase a paper strategy.
Compare risk estimators and their assumptions.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.
Explore related portfolio stress and rebalancing decisions.
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