cvxsimulator

Given a universe of $m$ assets we are given prices for each of them at time $t_1, t_2, \ldots t_n$, e.g. we operate using an $n \times m$ matrix where each column corresponds to a particular asset.

In a backtest we iterate in time (e.g. row by row) through the matrix and allocate positions to all or some of the assets. This tool shall help to simplify the accounting. It keeps track of the available cash, the profits achieved, etc.

Modus operandi

The simulator shall be completely agnostic as to the trading policy/strategy. Our approach follows a rather common pattern:

Create the builder object
Loop through time
Analyse results

We demonstrate those steps with somewhat silly policies. They are never good strategies, but are always valid ones.

Create the builder object

The user defines a builder object by loading a frame of prices and initialize the amount of cash used in our experiment:

from pathlib import Path

import pandas as pd
from cvx.simulator.builder import builder

prices = pd.read_csv(Path("resources") / "price.csv", index_col=0, parse_dates=True, header=0).ffill()
b = builder(prices=prices, initial_cash=1e6)

It is also possible to specify a model for trading costs. The builder helps to fill up the frame of positions. Only once done we construct the actual portfolio.

Loop through time

We have overloaded the __iter__ and __setitem__ methods to create a custom loop. Let's start with a first strategy. Each day we choose two names from the universe at random. Buy one (say 0.1 of your portfolio wealth) and short one the same amount.

for t, state in b:
    # pick two assets at random
    pair = np.random.choice(b.assets, 2, replace=False)
    # compute the pair
    stocks = pd.Series(index=b.assets, data=0.0)
    stocks[pair] = [state.nav, -state.nav] / state.prices[pair].values
    # update the position 
    b[t[-1]] = 0.1 * stocks

Here t is the growing list of timestamps, e.g. in the first iteration t is $t1$, in the second iteration it will be $t1, t2$ etc.

A lot of magic is hidden in the state variable. The state gives access to the currently available cash, the current prices and the current valuation of all holdings.

Here's a slightly more realistic loop. Given a set of $4$ assets we want to implmenent the popular $1/n$ strategy.

for t, state in b:
    # each day we invest a quarter of the capital in the assets
    b[t[-1]] = 0.25 * state.nav / state.prices

Note that we update the position at the last element in the t list using a series of actual stocks rather than weights or cashpositions. The builder class also exposes setters for such alternative conventions.

for t, state in b:
    # each day we invest a quarter of the capital in the assets
    b.set_weights(t[-1], pd.Series(index=b.assets, data = 0.25))

Once finished it is possible to build the portfolio object

portfolio = b.build()

Analyse results

The loop above is filling up the desired positions. After triggering the build() the resulting portfolio is ready for further analysis. It is possible dive into the data, e.g.

portfolio.nav
portfolio.cash
portfolio.equity
...

Bypassing the builder

Some may know the positions the portfolio shall enter for eternity. Running through a loop is rather non-pythonic waste of time in such a case. It is possible to completely bypass this step by submitting a frame of positions together with a frame of prices when creating the portfolio object.

from pathlib import Path

import pandas as pd
from cvx.simulator.portfolio import EquityPortfolio

prices = pd.read_csv(Path("resources") / "price.csv", index_col=0, parse_dates=True, header=0).ffill()
stocks = pd.read_csv(Path("resources") / "stock.csv", index_col=0, parse_dates=True, header=0)
portfolio = EquityPortfolio(prices=prices, stocks=stocks, initial_cash=1e6)

Poetry

We assume you share already the love for Poetry. Once you have installed poetry you can perform

poetry install

to replicate the virtual environment we have defined in pyproject.toml.

Kernel

We install JupyterLab within your new virtual environment. Executing

./create_kernel.sh

constructs a dedicated Kernel for the project.

mirca/simulator