AI in Algorithmic Trading Quiz

Answers and explanations appear as you take the quiz.

1. What is 'overfitting' in the context of trading models?
   • A model that fits historical noise and fails on live data
   • Trading too many shares at once
   • Using too much computer memory
   • Buying overpriced stocks
2. What is the primary goal of execution algorithms like VWAP and TWAP?
   • To predict next year's prices
   • To fill large orders while minimizing market impact
   • To encrypt trade data
   • To eliminate all risk
3. Why is financial market data described as 'non-stationary'?
   • It never changes
   • It is stored in one location
   • Its statistical patterns shift over time
   • It is always increasing
4. What uncertainty did Busseti and Boyd incorporate into their VWAP execution model?
   • A guaranteed future price for every share
   • A perfect forecast of market-wide returns
   • A signal that removes transaction costs
   • Imperfect knowledge of total market volume during the execution schedule
5. What data did the cited VWAP execution study use for its simulation validation?
   • Real NYSE market data
   • A guaranteed future price for every share
   • Only synthetic data from a single stock
   • A set of central-bank press releases
6. What result did Busseti and Boyd report for their simulated VWAP solution?
   • A guaranteed 10% trading profit for every investor
   • A 10% reduction in VWAP-deviation RMSE versus the standard static solution
   • A 10% reduction in losses for every market regime
   • Zero slippage under all order sizes
7. Why use chronological train and test splits for trading models?
   • To ensure every period has identical prices
   • To increase the number of assets
   • To reduce leakage from future market information into past predictions
   • To remove transaction costs automatically
8. Why include transaction costs and slippage in a backtest?
   • They always improve returns
   • They are only relevant for HFT
   • They replace out-of-sample testing
   • They can materially change whether a signal is economically usable