by Luis van Sandbergen
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Suggested foundations for trading research and honest backtests and optimisation and numerical methods. Specialist prerequisites vary by paper.
Use only information available at the simulated decision time.
Separate model selection from the final evaluation.
Read the linear algebra used to define a numerical problem.
Identify the objective, constraints and conditions for an optimum.
Reconcile signals, executions, positions and P&L.
Include the costs that can erase a paper strategy.
Understand identifiability and fitted model parameters.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.