Glossary · P
What is PBO (Probability of Backtest Overfitting)?
An estimate of how likely a strategy-selection process is to choose a configuration that was best in-sample but below median out-of-sample. Developed by Bailey, Borwein, López de Prado and Zhu.
In context
Probability of Backtest Overfitting (PBO). Developed by Bailey, Borwein, López de Prado and Zhu. The data is split into many pieces, which are recombined into many in-sample and out-of-sample pairs. For each pair, the procedure asks: "Did the configuration that was best in-sample end up below the median out-of-sample?" The fraction of pairs where the answer is yes is an estimate of how likely your selection process is to pick an overfit winner.
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