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 InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-110.
Date of creation: 2002
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risk management; capital;
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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