Applying a Custom Margin Interest Model in Backtests
Summary
This short example demonstrates how to attach a custom margin interest model to an equity security in a backtest. The algorithm adds SPY at hourly resolution, sets a date range, and establishes a position. Its custom model applies interest to positive-valued holdings by adjusting the position's cash value at a fixed rate, while counting how many times the model runs. At the end, assertions check that the model was called and that portfolio cash matches the expected compounded adjustment.
The example is useful as an implementation concept for representing financing costs in historical simulations, since those costs can affect the cash balance and therefore strategy results. It is not an analysis of a trading strategy and presents no market-performance evidence. The demonstration uses a simple fixed rate and positive-position condition; it does not explain calibration to historical borrowing rates, treatment of short positions, or whether this simplified calculation suits other securities and account settings. Those assumptions would need review before applying the pattern to a realistic financing model.
Key ideas
- A security can be assigned a custom margin interest model for backtesting.
- The example updates cash based on a fixed rate applied to positive-valued holdings.
- A call counter and end-of-run cash assertion check that the model operated as expected.
- The demonstration does not show historical rate calibration or treatment of short positions.
- Financing assumptions should be reviewed because they can affect backtest cash and results.
Tags
Full text
# CustomMarginInterestRateModelAlgorithm
# CustomMarginInterestRateModelAlgorithm
Demonstration of using custom margin interest rate model in backtesting.
## Source (Apache-2.0)
```python
# QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
# Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
#
# Licensed under the Apache License, Version 2.0 (the "License")
# you may not use this file except in compliance with the License.
# You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
#
# Unless required by applicable law or agreed to in writing, software
# distributed under the License is distributed on an "AS IS" BASIS,
# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
# See the License for the specific language governing permissions and
# limitations under the License.
from AlgorithmImports import *
### <summary>
### Demonstration of using custom margin interest rate model in backtesting.
### </summary>
class CustomMarginInterestRateModelAlgorithm(QCAlgorithm):
def initialize(self):
self.set_start_date(2013, 10, 1)
self.set_end_date(2013, 10, 31)
security = self.add_equity("SPY", Resolution.HOUR)
self._spy = security.symbol
# set the margin interest rate model
self._margin_interest_rate_model = CustomMarginInterestRateModel()
security.set_margin_interest_rate_model(self._margin_interest_rate_model)
self._cash_after_order = 0
def on_data(self, data: Slice):
if not self.portfolio.invested:
self.set_holdings(self._spy, 1)
def on_order_event(self, order_event: OrderEvent):
if order_event.status == OrderStatus.FILLED:
self._cash_after_order = self.portfolio.cash
def on_end_of_algorithm(self):
if self._margin_interest_rate_model.call_count == 0:
raise AssertionError("CustomMarginInterestRateModel was not called")
expected_cash = self._cash_after_order * pow(1 + self._margin_interest_rate_model.interest_rate, self._margin_interest_rate_model.call_count)
if abs(self.portfolio.cash - expected_cash) > 1e-10:
raise AssertionError(f"Expected cash {expected_cash} but got {self.portfolio.cash}")
class CustomMarginInterestRateModel:
def __init__(self):
self.interest_rate = 0.01
self.call_count = 0
def apply_margin_interest_rate(self, parameters: MarginInterestRateParameters):
security = parameters.security
position_value = security.holdings.get_quantity_value(security.holdings.quantity)
if position_value.amount > 0:
position_value.cash.add_amount(self.interest_rate * position_value.cash.amount)
self.call_count += 1
```Shown in full with attribution under the source's licence. Licence: Apache-2.0
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.