RECENT SEMINARS AND ACADEMIC LECTURES
The best part of giving a seminar is the opportunity to meet people who have also thought deeply about that topic, and may have reached different conclusions. I have found these encounters very productive in advancing my own research.
AUTHORS  YEAR  TITLE  ABSTRACT 
Lopez de Prado, Marcos  2017  Supercomputing for Finance: A gentle introduction 
This presentation introduces key concepts needed to operate a highperformance computing cluster. 
Lopez de Prado, Marcos  2016  Mathematics & Economics: A Reality Check 
Economics (and by extension finance) is arguably one of the most mathematical fields of research. However, economists’ choice of math may be inadequate to model the complexity of social institutions. 
Lopez de Prado, Marcos  2016  Financial Quantum Computing 
Quantum computers can be used to solve some of the hardest problems in Finance. In this presentation we discuss some applications. 
Lopez de Prado, Marcos  2016  Building Diversified Portfolios that Outperform OutOfSample 
MeanVariance portfolios are optimal insample, however they tend to perform poorly outofsample (even worse than the 1/N naïve portfolio!) We introduce a new portfolio construction method that substantially improves the OutOfSample performance of diversified portfolios. 
Lopez de Prado, Marcos  2015  Quantum Computing (in 5 minutes or less) 
The purpose of our work is to show that, in the near future, Quantum Computing algorithms may solve many currently intractable financial problems, and render obsolete many existing mathematical approaches. 
Lopez de Prado, Marcos  2015  MultiPeriod Integer Portfolio Optimization Using a Quantum Annealer 
Computing a trading trajectory in general terms is a NPComplete problem. This note illustrates how quantum computers can solve this problem in the most general terms. 
Lopez de Prado, Marcos  2015  Backtesting 
Empirical Finance is in crisis: Our most important “discovery” tool is historical simulation, and yet, most backtests published in the top Financial journals are wrong. We present practical solutions to this problem. 
Lopez de Prado, Marcos  2015  Illegitimate Science: Why Most Empirical Discoveries in Finance Are Likely Wrong, and What Can Be Done About It 
The proliferation of false discoveries is a pressing issue in Financial research. For a large enough number of trials on a given dataset, it is guaranteed that a model specification will be found to deliver sufficiently low pvalues, even if the dataset is random. Most academic papers and investment proposals do not report the number trials involved in a discovery. The implication is that most published empirical discoveries in Finance are likely to be false. This has severe implications, specially with regards to the peerreview process and the Backtesting of investment proposals. We make several proposals on how to address these problems. 
Lopez de Prado, Marcos  2014  Optimal Trading Rules Without Backtesting 
Calibrating a trading rule using a historical simulation (also called backtest) contributes to backtest overfitting, which in turn leads to underperformance. In this paper we propose a procedure for determining the optimal trading rule (OTR) without running alternative model configurations through a backtest engine. 
Lopez de Prado, Marcos  2014  Deflating the Sharpe Ratio 
The Deflated Sharpe Ratio (DSR) corrects for two leading sources of performance inflation: NonNormally distributed returns, and selection bias under multiple testing. 
Lopez de Prado, Marcos  2014  Stochastic Flow Diagrams add Topology to the Econometric Toolkit 
Just as Geometry could not help Euler solve the “Seven Bridges of Königsberg” problem, Econometric analysis or Linear Algebra alone are not able to answer many key questions about how financial markets coordinate. Statistical tables are detailed in terms of reporting estimated values, however that level of detail also obfuscates the logical relationships between variables. Stochastic Flow Diagrams (SFDs) add Topology to the Statistical and Econometric toolkit. SFDs are more insightful than the standard collection of statistical tables because SFDs shift the focus from the algebraic solution of the system to its logical structure, its topology. 
Lopez de Prado, Marcos  2013  What to look for in a Backtest 
A large number of quantitative hedge funds have historically sustained losses. In this study we argue that the backtesting methodology at the core of their strategy selection process may have played a role. Most firms and portfolio managers rely on backtests (or historical simulations of performance) to allocate capital to investment strategies. If a researcher tries a large enough number of strategy configurations, a backtest can always be fit to any desired performance for a fixed sample length. Thus, there is a minimum backtest length (MinBTL) that should be required for a given number of trials. Standard statistical techniques designed to prevent regression overfitting, such as holdout, are inaccurate in the context of backtest evaluation. The practical totality of published backtests do not report the number of trials involved, and thus we must assume those results may be overfit. 
Lopez de Prado, Marcos  2013  How long does it take to recover from a Drawdown? 
Investment management firms routinely hire and fire employees based on the performance of their portfolios. Such performance is evaluated through popular metrics that assume IID Normal returns, like Sharpe ratio, Sortino ratio, Treynor ratio, Information ratio, etc. However, investment returns are far from IID Normal. We find that firms evaluating performance through Sharpe ratio are firing up to three times more skillful managers than originally targeted. This is very costly to firms and investors, and is a direct consequence of wrongly assuming that returns are IID Normal. An implication is that an accurate performance evaluation methodology is worth a substantial portion of the fees paid to hedge funds. 
Lopez de Prado, Marcos 
2013 
A Journey through the "Mathematical Underworld" of Portfolio Optimization 
It has been estimated that the current size of the asset management industry is approximately US$58 trillion. Portfolio optimization is one of the problems most frequently encountered by financial practitioners. It appears in various forms in the context of Trading, Risk Management and Capital Allocation. The Critical Line Algorithm (CLA) is the only algorithm specifically designed for inequalityconstrained portfolio optimization problems, which guarantees that the exact solution is found after a predefined number of iterations. Surprisingly, opensource implementations of CLA in a scientific language appear to be inexistent or unavailable. The lack of publicly available CLA software, commercially or opensource, means that trillions of dollars are likely to be suboptimally allocated as a result of practitioners using generalpurpose quadratic optimizers. For a video of this presentation, follow this link. 
Lopez de Prado, Marcos 
2012 
LowFrequency Traders in a HighFrequency World: A Survival Guide 
Multiple empirical studies have shown that Order Flow Imbalance has predictive power over the trading range. The PIN Theory (Easley et al. [1996]) reveals the Microstructure mechanism that explains this observed phenomenon. VPIN is a High Frequency estimate of PIN, which can be used to detect the presence of Informed Traders. 
Lopez de Prado, Marcos 
2012 
Every structure has natural frequencies. Minor shocks in these frequencies can bring down any structure, e.g. a bridge. An Investment Universe also has natural frequencies, characterized by its eigenvectors. A concentration of risks in the direction of any such eigenvector exposes a portfolio to the possibility of greater than expected losses (indeed, maximum risk for that portfolio size), even if that portfolio is below the risk limits. This is particularly dangerous in a riskon/riskoff regime. Managing Risk is not only about limiting its amount, but also controlling how this amount is concentrated around the natural frequencies of the investment universe. 

Lopez de Prado, Marcos 
2012 
The Sharp Razor: Performance Evaluation with NonNormal Returns 
Because the Sharpe ratio only takes into account the first two moments, it wrongly “translates” skewness and excess kurtosis into standard deviation. As a result: (a) It deflates the skill measured on “wellbehaved” investments (positive skewness, negative excess kurtosis). (b) It inflates the skill measure on “badlybehaved” investments (negative skewness, positive excess kurtosis). Sharpe ratio estimates need to account for higher moments, even if investors only care about two moments (Markowitz framework). 
Lopez de Prado, Marcos 
2012 
Concealing the Trading Footprint: Optimal Execution Horizon 
Market Makers adjust their trading range to avoid being adversely selected by Informed Traders; Informed Traders reveal their future trading intentions when they alter the Order Flow; Consequently, Market Makers’ trading range is a function of the Order Flow imbalance. The Optimal Execution Horizon (OEH) algorithm presented here takes into account order imbalance to determine the optimal participation rate. 
Lopez de Prado, Marcos 
2012 
Portfolio Oversight: An Evolutionary Approach 
An analogue can be made between: (a) the slow pace at which species adapt to an environment, which often results in the emergence of a new distinct species out of a once homogeneous genetic pool, and (b) the slow changes that take place over time within a fund, with several coexisting investment style which mutate over time. A fund’s track record provides a sort of genetic marker, which we can use to identify mutations. The biometric procedure presented here can detect the emergence of a new investment style within a fund’s track record. In doing so, we answer the question: “What is the probability that a particular PM’s performance is departing from the reference distribution used to allocate her capital?” 