Backtesting Value-at-Risk: A GMM Duration-Based Test
نویسندگان
چکیده
منابع مشابه
Backtesting Value-at-Risk: A Duration-Based Approach
Financial risk model evaluation or backtesting is a key part of the internal model’s approach to market risk management as laid out by the Basle Committee on Banking Supervision. However, existing backtesting methods have relatively low power in realistic small sample settings. Our contribution is the exploration of new tools for backtesting based on the duration of days between the violations ...
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One of the implications of the creation of Basel Committee on Banking Supervision was the implementation of Value-at-Risk (VaR) as the standard tool for measuring market risk. Since then, the capital requirements of commercial banks with trading activities are based on VaR estimates. Therefore, appropriately constructed tests for assessing the out-of-sample forecast accuracy of the VaR model (b...
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Nowadays the most extensively used risk measure by financial institution is known as Value-at-Risk (VaR), which is defined as the maximum expected loss on an investment over a specified horizon at a given confidence level. To evaluate the accuracy and quality of the out-of-sample VaR forecast (backtesting procedures) is an important issue in practice. The purpose of this paper is to quantify th...
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The views expressed in this paper are those of the authors and do not necessarily reflect those of the Reserve Bank of Australia. A number of people (both within the Reserve Bank and from other banks) provided useful comments. We are particularly grateful to Phil Lowe, Brian Gray and the bank that provided the data for testing.
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Backtesting methods are statistical tests designed to uncover excessive risk-taking from financial institutions. We show in this paper that these methods are subject to the presence of model risk produced by a wrong specification of the conditional VaR model, and derive its effect on the asymptotic distribution of the relevant out-of-sample tests. We also show that in the absence of estimation ...
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ژورنال
عنوان ژورنال: Journal of Financial Econometrics
سال: 2010
ISSN: 1479-8409,1479-8417
DOI: 10.1093/jjfinec/nbq025