strategy_risk

Subject

Portfolio Construction and Risk

Why This Module Exists

Strategy risk is the probability that a process fails to achieve a Sharpe objective over time; it is distinct from holdings/portfolio variance risk and should be monitored separately.

Mathematical Foundations

Symmetric Sharpe

$\theta=\frac{2p-1}{2\sqrt{p(1-p)}}\sqrt{n}$

Asymmetric Sharpe

$\theta=\frac{(\pi_+-\pi_-)p+\pi_-}{(\pi_+-\pi_-)\sqrt{p(1-p)}}\sqrt{n}$

Strategy Failure Probability

$P_{fail}=\Pr[p\le p^*],\quad p^*=\text{impliedPrecision}(\theta^*,\pi_+,\pi_-,n)$

Usage Examples

Rust

Estimate strategy-failure probability from realized bets

use openquant::strategy_risk::{estimate_strategy_failure_probability, StrategyRiskConfig};

let outcomes = vec![0.005, -0.01, 0.005, 0.005, -0.01, 0.005, 0.005, -0.01];
let report = estimate_strategy_failure_probability(
  &outcomes,
  StrategyRiskConfig {
    years_elapsed: 2.0,
    target_sharpe: 2.0,
    investor_horizon_years: 2.0,
    bootstrap_iterations: 10_000,
    seed: 7,
    kde_bandwidth: None,
  },
)?;

println!("p*: {:.4}", report.implied_precision_threshold);
println!("failure (KDE): {:.2}%", 100.0 * report.kde_failure_probability);

API Reference

Rust API

• sharpe_symmetric
• implied_precision_symmetric
• implied_frequency_symmetric
• sharpe_asymmetric
• implied_precision_asymmetric
• implied_frequency_asymmetric
• estimate_strategy_failure_probability
• StrategyRiskConfig
• StrategyRiskReport

Implementation Notes

• Inputs under manager control ({pi_minus, pi_plus, n}) should be analyzed separately from uncertain market precision p.
• Use this module for strategy-level viability and probability-of-failure diagnostics; use risk_metrics for portfolio-tail and drawdown risk.