backtest.py

import numpy as np
import pandas as pd
from scipy.linalg import cholesky
import copy

from config import Color, logger, DEFAULT_CONFIG
from core_types import PortfolioState, LotManager, CovarianceResult
from models import regime_stress_covariance
from solver import build_and_optimize

try:
    from execution import estimate_market_impact
    _HAS_EXECUTION = True
except ImportError:
    _HAS_EXECUTION = False

def expanding_window_backtest(returns_df, spy_rets, capital, rfr, cfg, model, allocation_engine, spread_map, initial_train_days=1260, rebalance_freq=63, ff_df=None, yield_df=None):
    """
    Performs a rigorous out-of-sample expanding window backtest. 
    Inherently applies LotManager for precise HIFO tax lot tracking across time.
    """
    trading_days = cfg.get("trading_days_per_year", 252)
    adv_proxy = cfg.get("default_adv_proxy", 50_000_000.0)
    
    local_cfg = copy.deepcopy(cfg)
    local_cfg['_is_historical_backtest'] = True
    
    total_days = len(returns_df)
    if total_days <= initial_train_days:
        print(f" {Color.YELLOW}⚠ Not enough data for expanding window backtest. Need > {initial_train_days} days.{Color.RESET}")
        return None, None
        
    equity_curve = pd.Series(index=returns_df.index[initial_train_days:], dtype=float)
    initial_start_date = returns_df.index[initial_train_days - 1]
    equity_curve.loc[initial_start_date] = capital
    equity_curve = equity_curve.sort_index()
    current_capital = capital
    
    tickers = list(returns_df.columns)
    
    current_state = PortfolioState.empty(tickers)
    lot_manager = LotManager()
    
    optimizer_failures = 0
    total_rebalances = 0
    
    synth_prices = (1 + returns_df).cumprod()
    
    # Pre-compute (1 + returns) once to avoid O(N^2) reallocation in the loop
    one_plus_returns_arr = 1.0 + returns_df.values
    
    print(f" {Color.DIM}ℹ Using trailing EWMA covariance computation for window blocks...{Color.RESET}")
    
    from core_types import OptimizationParams
    opt_params = OptimizationParams(use_fast_ewm_cov=True)
    
    # Incremental covariance state
    cov_halflife = 126
    alpha = 1 - np.exp(-np.log(2) / cov_halflife)
    ewm_mean = None
    ewm_cov = None
    
    spreads = np.array([spread_map.get(t, 0.0008) for t in tickers]) if spread_map else np.full(len(tickers), 0.0008)
    trade_cost = local_cfg.get("transaction_cost", 0.001)

    cumulative_idx = 0
    for t in range(initial_train_days, total_days, rebalance_freq):
        total_rebalances += 1
        start_idx = max(0, t - initial_train_days)
        train_df = returns_df.iloc[start_idx:t]
        train_spy = spy_rets.reindex(train_df.index).dropna()
        train_yields = yield_df.iloc[start_idx:t] if yield_df is not None and not yield_df.empty else None
        train_ff = ff_df.reindex(train_df.index).dropna() if ff_df is not None else None
        
        end_idx = min(t + rebalance_freq, total_days)
        oos_df = returns_df.iloc[t:end_idx]
        current_date = oos_df.index[0]
        train_end_date = train_df.index[-1]
        
        if ewm_mean is None:
            # Initialize from scratch using incremental formula to avoid pandas EWM normalization mismatch
            ewm_mean = train_df.iloc[0].values.copy()
            ewm_cov = np.outer(ewm_mean, ewm_mean)
            for row in train_df.iloc[1:].values:
                diff = row - ewm_mean
                ewm_mean += alpha * diff
                ewm_cov = (1 - alpha) * ewm_cov + alpha * np.outer(diff, diff)
            opt_params.incremental_cov = pd.DataFrame(ewm_cov * trading_days, index=tickers, columns=tickers)
        else:
            # Incrementally update EWM cov over the new window (start_idx to t) 
            # We process the last rebalance_freq rows from train_df.
            new_rows = returns_df.iloc[t - rebalance_freq:t].values
            for row in new_rows:
                # EWM update formulas
                diff = row - ewm_mean
                ewm_mean += alpha * diff
                # outer product
                ewm_cov = (1 - alpha) * ewm_cov + alpha * np.outer(diff, diff)
            
            opt_params.incremental_cov = pd.DataFrame(ewm_cov * trading_days, index=tickers, columns=tickers)
    
        try:
            # Ensure total_capital is properly set in the state before optimization
            # This is critical for impact models and risk budget scaling
            current_state.total_capital = current_capital
            
            opt_res = build_and_optimize(
                train_df, train_spy, risk_input=local_cfg.get('_risk_input', 5), 
                risk_factor=local_cfg.get('_risk_factor', 3.0), state=current_state, cfg=local_cfg, 
                model=model, allocation_engine=allocation_engine, 
                ff_df=train_ff, spread_map=spread_map, silent=True, yield_df=train_yields,
                opt_params=opt_params
            )
            target_w = opt_res.weights
        except Exception as e:
            optimizer_failures += 1
            logger.warning(f"Expanding window rebalance failed at step {t}: {e}")
            target_w = pd.Series(1.0/len(tickers), index=tickers)
            
        # Handle Delisted/Dead Assets
        for col in target_w.index:
            if col != 'CASH' and col in synth_prices.columns:
                px = synth_prices[col].iloc[t]
                if pd.isna(px) or px <= 1e-8:
                    target_w[col] = 0.0
            
        w_arr = target_w.drop(labels=['CASH'], errors='ignore').reindex(oos_df.columns).fillna(0.0).values
        cash_w = float(target_w.get('CASH', 0.0))
        
        if isinstance(rfr, pd.Series):
            rfr_oos = rfr.reindex(oos_df.index).ffill().bfill().fillna(0.04)
            daily_rfr = (rfr_oos / trading_days).values
            cash_growth = (1 + daily_rfr).cumprod()
        else:
            daily_rfr = rfr / trading_days
            cash_growth = (1 + daily_rfr) ** np.arange(1, len(oos_df) + 1)
            
        # True Buy-and-Hold Return Computation (Instead of Daily Rebalancing Approximation)
        # 1. Asset values compound organically across the period
        oos_synth = synth_prices.loc[oos_df.index]
        base_idx = synth_prices.index.get_indexer([train_end_date], method='ffill')[0]
        base = synth_prices.iloc[base_idx]
        asset_paths = oos_synth.divide(base + 1e-9, axis=1).values
        allocated_capital_path = current_capital * (asset_paths @ w_arr)
        
        # 3. Add continuous compounding cash yield
        cash_path = current_capital * cash_w * cash_growth
        
        # 4. Total Capital at each step
        total_path = allocated_capital_path + cash_path
        
        # 5. Extract the true daily portfolio returns for accounting
        port_daily_rets = np.diff(total_path, prepend=current_capital) / np.concatenate(([current_capital], total_path[:-1]))
    
        prev_w_arr = current_state.current_weights
        if isinstance(prev_w_arr, pd.Series):
            prev_w_arr = prev_w_arr.drop(labels=['CASH'], errors='ignore').reindex(oos_df.columns).fillna(0.0).values
        delta = w_arr - prev_w_arr
    
        friction = np.sum(np.abs(delta) * (spreads + trade_cost), axis=0)
    
        impact = 0.0
        if _HAS_EXECUTION:
            vols = train_df.std().values
            for i, t_val in enumerate(delta):
                if abs(t_val) > 1e-4:
                    impact_pct = estimate_market_impact(abs(t_val * current_capital), adv_proxy, vols[i])
                    impact += impact_pct * abs(t_val)
                
        # ── EXACT LOT-BY-LOT TAX LIQUIDATION ──
        tax_hit = 0.0
    
        if t == initial_train_days:
            for i, ticker in enumerate(tickers):
                if w_arr[i] > 1e-5 and current_capital > 0:
                    curr_idx = synth_prices.index.get_indexer([current_date], method='ffill')[0]
                    px = synth_prices.iloc[curr_idx][ticker]
                    shares = (w_arr[i] * current_capital) / px
                    lot_manager.add_lot(ticker, current_date, px, shares)
        else:
            step_lt_gain = 0.0
            step_st_gain = 0.0
            
            if local_cfg.get('tax_enabled', False) and current_capital > 1e-4:
                for i, ticker in enumerate(tickers):
                    w_shift = delta[i]
                    curr_idx = synth_prices.index.get_indexer([current_date], method='ffill')[0]
                    px = synth_prices.iloc[curr_idx][ticker]
                
                    if w_shift < -1e-5: 
                        shares_to_sell = abs(w_shift) * current_capital / px
                        _, lt_gain, st_gain = lot_manager.sell_shares_with_tax(
                            ticker, shares_to_sell, px, current_date, 
                            lt_days=local_cfg.get('lt_days', 366), method='hifo'
                        )
                        step_lt_gain += lt_gain
                        step_st_gain += st_gain
                                       
                    elif w_shift > 1e-5:
                        shares_to_buy = w_shift * current_capital / px
                        lot_manager.add_lot(ticker, current_date, px, shares_to_buy)
                
                tax_hit_dollars = (max(0, step_lt_gain) * local_cfg.get('tax_rate_lt', 0.20)) + \
                                  (max(0, step_st_gain) * local_cfg.get('tax_rate_st', 0.35))
                
                tax_hit = tax_hit_dollars / current_capital
            else:
                tax_hit = 0.0
        
        for i in range(len(port_daily_rets)):
            if i == 0:
                current_capital *= (1 + port_daily_rets[i] - friction - impact - tax_hit)
            else:
                current_capital *= (1 + port_daily_rets[i])
            
            current_capital = max(0.0, current_capital)
            cumulative_idx += 1
            if cumulative_idx < len(equity_curve):
                equity_curve.iloc[cumulative_idx] = current_capital
            
        # Extract drifted end weights for the next period's delta calculation
        if current_capital > 1e-4:
            drifted_values = (current_capital * w_arr) * asset_paths[-1]
            drifted_weights = drifted_values / np.sum(drifted_values) if np.sum(drifted_values) > 0 else w_arr
            w_arr = drifted_weights
        
        current_state.current_weights = np.append(w_arr, cash_w) if hasattr(current_state, 'cash_weight') else w_arr
        # To be safe and preserve the exact type, we construct a Series
        current_state.current_weights = pd.Series(w_arr, index=oos_df.columns)
        current_state.current_weights['CASH'] = cash_w

    equity_curve = equity_curve.dropna()
    spy_oos = spy_rets.reindex(equity_curve.index).fillna(0.0)
    spy_eq = capital * (1 + spy_oos).cumprod()
    
    return equity_curve, spy_eq


def monte_carlo(weights, exp_rets, cov_mat, capital, cfg, macro=None, seed=None, return_paths=False):
    """
    Generates thousands of future equity paths.
    Properly routes HMM regime severity to stress both correlations and volatilities.
    Uses dynamic trading days for drift computation.
    
    Args:
        return_paths (bool): If True, compute and return a (days, 50) array of
            sample equity paths for visualisation.  Defaults to False to save
            memory when the caller only needs percentile bands.
    """
    # Note: Use localized standard generator, no longer mutating global RNG state
    rng = np.random.default_rng(seed)
        
    trading_days = cfg.get("trading_days_per_year", 252)
    sims = cfg.get("monte_carlo_sims", 5000)
    years = cfg.get("monte_carlo_years", 1.0)
    days = int(years * trading_days)
    
    w_risky = weights.drop(labels=['CASH'], errors='ignore')
    w_arr = w_risky.reindex(cov_mat.columns).fillna(0.0).values
    cash_w = float(weights.get('CASH', 0.0))
    rfr = cfg.get("risk_free_rate", 0.04)

    mu_daily = exp_rets.reindex(cov_mat.columns).fillna(0.0).values / trading_days
    
    regime_severity = 1.0
    if macro and "hmm_regime" in macro:
        if isinstance(macro["hmm_regime"], dict):
            regime_severity = macro["hmm_regime"].get("severity_score", 1.0)
        else:
            regime_severity = 1.0
        
    cov_arr = cov_mat.values
    vols_mc = np.sqrt(np.maximum(np.diag(cov_arr), 1e-12))
    outer_v = np.outer(vols_mc, vols_mc)
    with np.errstate(divide='ignore', invalid='ignore'):
        corr_arr = cov_arr / np.maximum(outer_v, 1e-8)
        corr_arr[np.isnan(corr_arr)] = 0.0
    cov_res_mc = CovarianceResult(
        covariance=cov_mat,
        correlation=pd.DataFrame(corr_arr, index=cov_mat.index, columns=cov_mat.columns),
        volatility=pd.Series(vols_mc, index=cov_mat.columns),
        shrinkage=0.0
    )
    stressed_cov = regime_stress_covariance(cov_res_mc, regime_severity)
    cov_daily = stressed_cov.covariance.values / trading_days

    try:
        chol = cholesky(cov_daily, lower=True)
    except Exception:
        chol = cholesky(cov_daily + np.eye(len(cov_daily)) * 1e-6, lower=True)

    var_daily = np.diag(cov_daily)
    drift = mu_daily - 0.5 * var_daily
    
    current_port_value = np.full(sims, capital, dtype=float)
    
    stats_5 = np.zeros(days)
    stats_25 = np.zeros(days)
    stats_50 = np.zeros(days)
    stats_75 = np.zeros(days)
    stats_95 = np.zeros(days)
    
    # Only allocate visual_paths when the caller actually needs them
    take = min(50, sims)
    visual_paths = np.zeros((days, take)) if return_paths else None
    
    daily_cash_factor = 1 + (rfr / trading_days)
    
    for d in range(days):
        Z = rng.standard_normal((sims, len(w_arr)))
        daily_shocks = Z @ chol.T
        
        asset_paths = np.exp(drift + daily_shocks)
        # Cash compounds daily: each day the cash portion grows by daily_cash_factor
        port_paths = np.sum(asset_paths * w_arr, axis=1) + cash_w * daily_cash_factor
        current_port_value *= port_paths
        
        p5, p25, p50, p75, p95 = np.percentile(current_port_value, [5, 25, 50, 75, 95])
        stats_5[d] = p5
        stats_25[d] = p25
        stats_50[d] = p50
        stats_75[d] = p75
        stats_95[d] = p95
        
        if visual_paths is not None:
            visual_paths[d, :] = current_port_value[:take]
        
    final_values = current_port_value
    percentiles = np.percentile(final_values, [5, 25, 50, 75, 95])
    
    stats = {
        5: stats_5.tolist(),
        25: stats_25.tolist(),
        50: stats_50.tolist(),
        75: stats_75.tolist(),
        95: stats_95.tolist(),
        "dates": [(pd.Timestamp.today() + pd.Timedelta(days=i)).strftime('%Y-%m-%d') for i in range(days)]
    }
    
    return visual_paths, stats