Backtesting And Simulation

Exam Focus

Understand how backtesting is part of risk assessment of an investment strategy, as well as the steps and procedures in backtesting a strategy. Be able to interpret the metrics and visuals reported in a backtest of an investment strategy and to identify problems in backtesting. In a historical scenario analysis, contrast Monte Carlo and historical simulation approaches.

Understand the role of inputs and various choices made in crafting a simulation, and the process for interpreting a simulation. Finally, we’ll demonstrate the use of sensitivity analysis as a complementary risk assessment technique.