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Quantitative Finance · Glossary

What is Latency and the live-in-bar policy?

Definition 17.4 Research Craft: Predictors, Backtests, Measurement, Portfolios · Chapter 17 — Event-Driven Backtests

With an order-entry latency, an order sent at a bar’s close is live from some moment within the next bar. A conservative policy lets an order fill in a bar only if it was live for the whole bar; an optimistic policy, if it was live at any moment of it. A bar cannot say which is right, because it does not say when within it the price reached the order.

The passive quoter on four simulated days under each fill model, with no latency and with a five-second latency under the optimistic policy (under the conservative policy it never fills), and the level-1 version of the same idea. Data: rs_evbt on firm.tape bars.
Figure 17.2. The passive quoter on four simulated days under each fill model, with no latency and with a five-second latency under the optimistic policy (under the conservative policy it never fills), and the level-1 version of the same idea. Data: rs_evbt on firm.tape bars.
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