Optimising Performance and Risk

Joaquin Narro and Monica Caamano

We are interested in examining the performance of an investment adjusted to its risk. In this chapter, we define the main processes necessary for optimising performance and risk when developing a successful systematic energy trading model. These include considerations surrounding the choice of optimisation parameters, based on our understanding of performance and risk, incorporating realistic trading assumptions regarding, for example, commissions, slippage, trading volume and liquidity.

Conceptually, considerations about performance and risk can be applied during the development phase (for instance, to historical data during backtesting) or throughout the live phase of the investment (for instance, on net realised performance). We are going to illustrate this by backtesting a CO2 trading strategy based on ICE European Emission Allowances (EUA) futures with the assumptions described in Table 11.1, as of April 2018. These assumptions are meant to be realistic, although they do not represent a specific offer from any service provider.

Table 11.1 CO2 model: Trading assumptions
Contract ICE EUA Futures – Front Dec  
Currency EUR  
Lot size 1,000 ton  
Margi

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