Evaluating the forecasts of risk models
The forecast evaluation literature has traditionally focused on methods for assessing point-forecasts. However, in the context of risk models, interest centers on more than just a single point of the forecast distribution. For example, value-at-risk (VaR) models, which are currently in extremely wide, use form interval forecasts. Many other important financial calculations also involve estimates not summarized by a point-forecast. Although some techniques are currently available for assessing interval and density forecasts, none are suitable for sample sizes typically available. This paper suggests a new approach to evaluating such forecasts. It requires evaluation of the entire forecast distribution, rather than a value-at-risk quantity. The information content of forecast distributions combined with ex post loss realizations is enough to construct a powerful test even with sample sizes as small as 100.
|Date of creation:||1999|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven N. Durlauf, 1992.
"Spectral Based Testing of the Martingale Hypothesis,"
NBER Technical Working Papers
0090, National Bureau of Economic Research, Inc.
- Durlauf, Steven N., 1991. "Spectral based testing of the martingale hypothesis," Journal of Econometrics, Elsevier, vol. 50(3), pages 355-376, December.
- Jose A. Lopez, 1997.
"Regulatory evaluation of value-at-risk models,"
9710, Federal Reserve Bank of New York.
- Jose A. Lopez, 1997. "Regulatory evaluation of value-at-risk models," Staff Reports 33, Federal Reserve Bank of New York.
- Jose A. Lopez, 1996. "Regulatory Evaluation of Value-at-Risk Models," Center for Financial Institutions Working Papers 96-51, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Paul H. Kupiec, 1993. "The performance of S&P500 futures product margins under the span margining system," Finance and Economics Discussion Series 93-27, Board of Governors of the Federal Reserve System (U.S.).
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997.
"Evaluating density forecasts,"
97-6, Federal Reserve Bank of Philadelphia.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating Density Forecasts," NBER Technical Working Papers 0215, National Bureau of Economic Research, Inc.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating Density Forecasts," Center for Financial Institutions Working Papers 97-37, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, . "Evaluating Density Forecasts," CARESS Working Papres 97-18, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
- Chatfield, Chris, 1993. "Calculating Interval Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 121-135, April.
- Francis X. Diebold & Jose A. Lopez, 1995.
"Forecast evaluation and combination,"
9525, Federal Reserve Bank of New York.
- Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
- Matthew Pritsker, 1997. "Evaluating Value at Risk Methodologies: Accuracy versus Computational Time," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 201-242, October.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
- Lucas, André, 1998. "Testing backtesting : an evaluation of the Basle guidelines for backtesting internal risk management models of banks," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
- Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:1999-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.