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Systematic and Automated Option Trading (Collection) by Sergey Izraylevich, Ph.D., Vadim Tsudikman

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Chapter 5. Backtesting of Option Trading Strategies

An automated trading system represents a package of software modules performing functions of development, formalization, setting up, and testing of trading strategies. Development and formalization were discussed in Chapter 1. Setup of strategies, which includes parameters optimization, capital allocation, and risk management, was described in Chapters 2, 3, and 4, respectively. The current chapter is dedicated to testing options trading strategies on historical data (such testing is commonly referred to as “backtesting”).

The module performing backtesting functions is composed of several objects: a historical database, a generator of position opening and closing signals, a simulator of trading ...

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