Dear customers, partners, business associates, and friends,

This month Lucena is launching two eagerly anticipated modules: Back Tester and Event Analyzer. With these two modules we have delivered on our road map objectives to provide 5 powerful and complementary decision support modules to our clients.

I strongly encourage you to attend unveiling webinars which will take place on April 19th, 2013 and May 2nd, 2013. We will be covering QuantDesk™ Back Tester and QuantDesk™ Event Analyzer respectively.

Here is a taste of what our first launch Back Tester (scheduled for April 22nd, 2013) provides:

Back Tester

If you think you have a “winning” trading strategy, you need a set of instruments to quantitatively assess its true value. You need to assess confidence in your strategy by simulating its implementation as if you were trading it in the past without the knowledge of what the future held and then comparing its projected outcome against what really transpired.

In many respects implementing such technology can be challenging. Let me just name a few of the issues that we have taken into consideration when designing our Back Tester:

• Executed Price - When simulating a historical transaction, the published price doesn’t necessarily guarantee entry and exit at that price. For example, if you enter a large Market order for low-volume equities, your order alone can move the price against you.
• Trade Execution Cost - Commission and fees incurred per trade. Also called Transaction cost should be considered carefully as part of the back test performance measures. For example, lots of small trades should, in theory, give a trader a steady and predictable rate of return. However, in reality the transaction cost in many cases may outweigh the returns, yielding a losing strategy.
• Short borrowing cost - Cost associated with hard to borrow and short borrowing cost. When one simulates a market neutral strategy for example, short positions are not guaranteed to be executed at the bid price. Furthermore, some equities may not be available for shorting to begin with while others have a borrowing interest charge incurred by the custodian or brokerage house.

Needless to say, Lucena’s Back Tester is unique as it is the only commercially available tool that I am aware of, that simulates machine learning backed strategies. It is tailored specifically to our QuantDesk™ Forecaster, Optimizer and Hedger and our clients will now be able to form their own strategies by back testing multiple scenarios and refining strategies in simulated mode before risking capital. Every back test is concluded with a comprehensive report that enumerates all the success metrics. For example: P&L, Transaction Cost, Beta, Max Draw Down, correlation with industry sectors, comparison to bench marks, transaction details and much more.

Thank you again for your support and your patronage.

CEO / Co-Founder
Lucena Research

You can also see Lucena’s complete newsletter by visiting April 2013 Newsletter.