Précisions importantes sur le backtesting comparatif de la VaR

Samir Saissi Hassani ()
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Samir Saissi Hassani: HEC Montreal, Canada Research Chair in Risk Management

No 21-5, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: VaR remains important in market risk management as Basel keeps most of the backtesting based on 1% VaR. Comparative backtesting as practiced in the current literature suffers from a major double problem. On the one hand, the score functions, although strictly consistent, may assign very good or even the best scores to clearly failing models. On the other hand, the DM test (Diebold and Mariano, 1995), as widely used to validate the score functions, fails to detect these "false best" models. We document these facts with concrete cases. To correct this issue, we propose to build the DM test using the identification functions associated with the score functions rather than on the score functions themselves. In addition, we provide a key improvement to the conditional calibration test of Nolde and Ziegel (2017). This allows for additional model validation via score functions, while providing a novel way to test the conditional coverage assumption on the standard backtesting side. The parallel and collaborative approach of the two VaR backtesting components, the standard and the comparative one, allows for increased conceptual richness and robustness of the overall backtesting. Finally, given the conceptual similarities, the points addressed regarding VaR should also concern the comparative backtesting of CVaR.

Keywords: Value at Risk; market risk; Basel settlements; standard backtesting; comparative backtesting; score functions; unconditional coverage; conditional coverage (search for similar items in EconPapers)
JEL-codes: C44 C46 C52 G21 G24 G28 G32 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2022-02-24
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:2021_005

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