Margin Interest and Cash Balances
Author: spcllc
Creation Date: 2/26/2011 1:28 PM
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spcllc

#1
I inserted both margin interest and cash interest in my backtesting.2 questions
1. What are good rates for both going back to 1999 asuming a high net worth account with discounted margin rates? and

2. I paid margin on my backtest buy and hold results even though only cash was used. How can that be? and How can I back that out?
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Cone

#2
1. Interest and margin values are currently pretty rudimentary - they aren't dynamic as they are in the real market, consequently this is something that can surely use improvement in Wealth-Lab.

On one hand, it's good to assume "the worst" for simulations (interest rate = 0% and margin rate, say, 8%). However, the interest rate value is used for the Sharpe ratio's risk-free return, so 0% interest wouldn't be very accurate for a 12-yr backtest. If you pay attention to Sharpe, as a stop-gap measure you could re-run the simulation with an average interest rate for the period.

Finally, since rates have varied greatly over the last 12 years, consider breaking up the backtest into several periods, especially if you trade a low-exposure system, and enter more representative rates and Strategy Equity for each run.

2. Not enough information. A picture of the Equity Curve (or its data) would be helpful.
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spcllc

#3
Thank You