deflated_sharpe_ratio¶
Defined in fynance.research
- deflated_sharpe_ratio(sr, n_obs, n_trials, *, skew=0.0, kurt=3.0, sr_variance=1.0)[source]
Deflated Sharpe ratio (DSR).
The PSR against a benchmark set to the expected maximum Sharpe of
n_trialsindependent strategies — i.e. the probability the edge survives the multiple testing implied by tryingn_trialsstrategies.- Parameters:
- srfloat
Observed (non-annualized) Sharpe ratio of the selected strategy.
- n_obsint
Number of return observations.
- n_trialsint
Number of strategy configurations tried.
- skew, kurtfloat
Skewness / kurtosis of the selected strategy’s returns.
- sr_variancefloat
Variance of the Sharpe estimates across the trials.
- Returns:
- float
DSR in
[0, 1]. Low values flag a likely overfit selection.