A review of backtesting and backtesting procedures

This paper reviews a variety of backtests that examine the accuracy of value-at-risk (VAR) measures. These backtesting procedures are reviewed from both a statistical and a risk management perspective. The properties of unconditional coverage and independence are defined and their relation to backte...

Full description

Saved in:
Bibliographic Details
Published in:The journal of risk 2006-12, Vol.9 (2), p.1
Main Author: Campbell, Sean D
Format: Article
Language:English
Subjects:
Accuracy
Financial institutions
Mathematical models
Measurement
Methods
Risk capital
Risk management
Simulation
Studies
Violations
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper reviews a variety of backtests that examine the accuracy of value-at-risk (VAR) measures. These backtesting procedures are reviewed from both a statistical and a risk management perspective. The properties of unconditional coverage and independence are defined and their relation to backtesting procedures is discussed. Backtests are then classified by whether they examine the unconditional coverage property, independence property, or both properties of a VAR measure. Backtests that examine the accuracy of a VAR model at several percentiles, rather than a single percentile, are also outlined and discussed. The statistical power properties of these tests are examined in a simulation experiment. [PUBLICATION ABSTRACT]
ISSN:1465-1211
1755-2842