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Evaluating Value-at-Risk models with desk-level data

Author

Listed:
  • Jeremy Berkowitz

    (University of Houston)

  • Peter Christoffersen

    (McGill University)

  • Denis Pelletier

    (Department of Economics, North Carolina State University)

Abstract

We present new evidence on disaggregated profit and loss and VaR forecasts obtained from a large international commercial bank. Our dataset includes daily P/L generated by four separate business lines within the bank. All four business lines are involved in securities trading and each is observed daily for a period of at least two years. Given this rich dataset, we provide an integrated, unifying framework for assessing the accuracy of VaR forecasts. A thorough Monte Carlo comparison of the various methods is conducted to provide guidance as to which of these many tests have the best finite-sample size and power properties. The Caviar test of Engle and Manganelli (2004) performs best overall but duration-based tests also perform well in many cases.

Suggested Citation

  • Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2005. "Evaluating Value-at-Risk models with desk-level data," Working Paper Series 010, North Carolina State University, Department of Economics, revised Dec 2006.
    • Handle: RePEc:ncs:wpaper:010
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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