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Table of Contents


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A Traderís Guide to Trading/Strategy P&L Simulation


Objective: to learn implementing and using forward and backward testing simulation to assess the risk-adjusted returns of trading/strategies and the implications for holding period returns for market makers, investors, and arbitrageurs including:

      To provide a good understanding of basic and advanced market models/dynamics

      To provide a good understanding of the construction and usage of forward (Monte Carlo) and backward (historical) testing methods.

      To provide a good understanding of "core" strategies and their variations, and replicating strategies for directional, arbitrage, and position keeping trading.  This includes dynamic methods (sensitivity/V01 based), static methods (immunisation, profile matching), and PaR based techniques.

      To examine several important cases for each type of position/trading strategy, and illustrate the usage, and  insight of holding P&L simulation.




      market maker, prop traders, sales, support, structurers

      management, treasurers,

      Risk Management

Table of Contents

1) Valuation and Market Dynamics: introduction to the tools and concepts of product valuation under uncertainty.  Clear and working illustration of both the basic underlying models and assumptions, the techniques used for valuation/risk management, as well as implications for real-world application. 

2) Simulation Methods: detailed coverage of important forward testing (Monte Carlo forecasting) and backward testing (historical data "forecasting"), providing sufficient knowledge not only to build simulators that process entire trading strategies with rebalance and real world effects (transaction costs, liquidity, credit, etc.), but also to know how to use them "sensibly" in a real world setting.

3) Position Keeping : Detailed coverage of key trading strategies for directional, arbitrage, and position keeping/hedging based strategies.  Techniques include static sensitivity based analysis/methods (e.g. V01/Duration), dynamic sensitivity (Delta, Gamma, Vega, etc), immunisation of cash flows, profile matching for complex pay-outs/exotic options using both static and dynamic variations,

4) Analyses of position holding strategies:  examination of position rebalancing, holding period rebalancing forward/backward testing for important cases, including:

      Outright futures: Buy & Hold, Moving Average Cross

      Bond hedged with Bond (or equivalently, a direction spread trade)

      Bond hedged w future (or equivalently a directional "basis" spread trade)

      Bond/Swap hedging (or equivalently a directional swap spread trade)

    Vanilla equity option: naked, Delta, and Delta+Gamma Pyramid

      FX and IR digital option using static and dynamic profile matching

Note: in-house versions of this seminar can be easily extended to include the simulations and analyses of specific structures/asset classes of interest to your portfolios, clients, etc.



1,233 Pages of comprehensive and extensively illustrated Handout Notes (see samples here)

Much software and supporting materials

Plus copies of relevant TG2 Books/e-Books

Note: Seminars can be tailored to your trading, risk, client, and systems needs.  Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard" list HERE)

    Get a Syllabus in more detail

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Last modified: July 25, 2011