Interest rates when backtesting
Author: asurapan
Creation Date: 1/31/2009 5:27 AM
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asurapan

#1
When backtesting, is there a different way to apply interest rates? I do not agree with the idea of having a fixed interest rate setting in the Tools/Preferences. For example, as of January 2009 the 90 Day T-Bills are 0.10% but was 5% in 2005 and in the stratosphere in the early '80's.

I was hoping to pull in (or create) a 90 day T-Bill data stream to be used in backtest results instead of the fixed setting.

In WLP4, I used the following code and pointed to the data:
CODE:
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The translator created the following code:
CODE:
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But I cannot seem to get this to work. Any idea what I could do to get this to work OR what the best practice is for WLD?
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Cone

#2
QUOTE:
I do not agree with the idea of having a fixed interest rate setting in the Tools/Preferences.
Just use the lowest interest rate in the testing period for worst-case. It's a simplification.

In my opinion there's little point getting hung up on a results of a single simulation that makes a few extra (or fewer) dollars due to interest payments. It's much more worthwhile taking the time to investigate a thousand other possibilities using a Monte Carlo simulation. (Monte Carlo-Lab still needs to be build for Version 5 though.)

Further, if you want to trade bonds and treasuries with extra cash, that's altogether different and doesn't reflect getting paid a coupon rate. Nonetheless, since PosSizers aren't yet available in Version 5, it won't be possible to size a cash Position differently than for stock trades.
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asurapan

#3
QUOTE:
In my opinion there's little point getting hung up on a results of a single simulation that makes a few extra (or fewer) dollars due to interest payments.


Agreed. I would not use the results of this as a live strategy and in fact when I backtest I use 0% as the interest rate. However, I am simply trying to replicate a strategy I read in a white paper by a managed futures trader and I am trying to verify the results of the fund. I am trying to decipher how much of the strategy actually comes from sitting in cash versus the actual strategy. Any idea how I could toggle between an equity position and a 90 day TBill or Money Market? The above code seemed to work in WL4 but not in WL5.
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Cone

#4
There's a special forum for the Translator if you need help with WSTL code.

Here's a drop-in translation without the need for WSTL -
CODE:
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