Wednesday, February 22, 2012

You can retroactively simulate anything

A new systemic risk insurance fund was launched yesterday - Eurogeddon.

The fund aims at the collapse of the euro and the run on the European banks over the next three years.

According the fund's marketing materials, Eurogeddon would have made nearly +150% return at the time when Lehman Brothers went bust, if only it was active at that time (it was launched only yesterday):

Chart: Simulation of the Eurogeddon hypothetical returns over the past five years

The simulation presented above, shows purely hypothetical Eurogeddon returns employing posterior knowledge about the events in the analyzed period, the macroeconomic view retroactively adapted to them and  trading strategy devised on the extrapolation of the past trends.

Therefore I hereby present an even better approach :)

I take a number of liquid assets, such as currencies, index and commodity futures and take positions in them (both long and short), based on the past knowledge of the daily movements of these assets.

As you can imagine, the results over just a couple of years would have been amazing...

Chart: Simulation of the returns of a hypothetical perfect knowledge fund over 4 years

Chart: Asset allocation of a hypothetical perfect knowledge fund

Chart: Simulated daily trades of a hypothetical perfect knowledge fund

Chart: Distribution of simulated daily trades

Isn't such SIMULATED TRACK RECORD impressive? :)

UPDATE 2012-02-24

Thanks to some creativity, Eurogeddon is already up +2.20% YTD and +34.70% since its "inception":

Such an amazing result is possible for forming Eurogeddon on the basis of an existing equity fund. Mostly long biased in opposition to the declared Eurogeddon's strategy.


More information about the Eurogeddon fund:

Some Eurogeddon related links:

[ R source code ]