Making the case for a profitable trading model
Question
You believe you have built a trading model that makes money. What would you present to your manager to convince them?
Short answer
Show robust out-of-sample evidence, net of costs, with a clear economic rationale. Include backtests on data not used to fit the model, realistic transaction costs and slippage, Sharpe ratio, drawdowns and turnover, statistical significance after accounting for how many ideas were tried, stability across periods and parameters, capacity, and a story for why the edge exists and why others have not arbitraged it away.
Adapted from Joshi, Denson & Downes, Quant Job Interview Questions and Answers, Q2.49, p.21; question and answer rewritten by SelfMadeQuant.com.
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