Backtesting for risk-based regulatory capital
AbstractIn this paper we present a framework for backtesting all currently popular risk measurement methods (including value-at-risk and expected shortfall) using the functional delta method.Estimation risk can be taken explicitly into account.Based on a simulation study we provide evidence that tests for expected shortfall with acceptable low levels have a better performance than tests for value-at-risk in realistic financial sample sizes.We propose a way to determine multiplication factors, and find that the resulting regulatory capital scheme using expected shortfall compares favorably to the current Basle Accord backtesting scheme.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 28 (2004)
Issue (Month): 8 (August)
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Web page: http://www.elsevier.com/locate/jbf
Other versions of this item:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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