by Gong, Yujing, Xue, Xiaohan, Zhang, Ning
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Suggested foundations for risk measurement and stress and trading research and honest backtests. Specialist prerequisites vary by paper.
Represent losses as a distribution rather than one forecast.
Distinguish a loss quantile from the average loss in the tail.
Use only information available at the simulated decision time.
Separate model selection from the final evaluation.
Compare risk estimators and their assumptions.
Check forecasts against realised losses.
Reconcile signals, executions, positions and P&L.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.