Questions on accounting model (e.g., for short positions)

[pcgm-team]

Why is there the check:

        v = np.sum(h)

        if v < 0.:
            raise DataError(
                f"Holdings provided to {self.__class__.__name__}.execute "
                + " have negative sum.")

In the case where you are holding primarily short positions, shouldn't the optimizer handle that?

[enzbus]

That's correct, you should double check the accounting model from the paper (chapter 2). Holdings include the cash account, short positions have a matching long in cash.On 1 Feb 2024, at 21:38, random ***@***.***> wrote: Why is there the check: v = np.sum(h) if v < 0.: raise DataError( f"Holdings provided to {self.__class__.__name__}.execute " + " have negative sum.") In the case where you are holding primarily short positions, shouldn't the optimizer handle that? —Reply to this email directly, view it on GitHub, or unsubscribe.You are receiving this because you are subscribed to this thread.Message ID: ***@***.***>

[pcgm-team]

I suppose I'd misinterpretted the cash to be free cash.

[enzbus]

Cvxportfolio's (the paper's) accounting model uses the self-financing condition, all asset purchases have a corresponding cash decrease, and sells have a corresponding cash increase. For example, if you start with $1M in your brokerage account, buy $1M in a long positions and sell $1M in a short positions, in our accounting your cash account has still 1 million, the weights vector is (1,-1,1), the portfolio value (sum of h) is one million, leverage is 2. Any fees associated with shorts or margin are to be modeled by HoldingCost, both in optimization and simulation.