Overview

A forecast is not a holding, an order is not a fill, and a marked gain is not necessarily a gain that can be liquidated at the quoted price. This topic builds the accounting and economic assumptions that connect a research signal to a portfolio return. The simulator must answer what the strategy owns, how it acquired those holdings, how cash changed and what it would cost to change or close the book.

The previous topics established historical information and validation integrity. Those controls prevent a model from seeing the future, but a causally valid forecast can still be untradeable. A short may be unavailable, a large order may move the market, or a profitable percentage return may disappear as capital increases. Economic simulation makes these constraints explicit.

By the end of this note you should be able to:

• reconcile signals, desired holdings, orders, partial fills and cash;
• derive the marked P&L identity including execution slippage;
• calculate financing, borrow and cost contributions without double counting;
• evaluate capacity under volume and impact scenarios;
• report return, drawdown, concentration, exposures and uncertainty together.

1. Contents
2. The big picture