A new set of improved Value-at-Risk backtests

Daniel Ziggel, Tobias Berens, Gregor N.F. Weiß and Dominik Wied

Journal of Banking & Finance, 2014, vol. 48, issue C, 29-41

Abstract: We propose a new set of formal backtests for VaR-forecasts that significantly improve upon existing backtesting procedures. Our new test of unconditional coverage can be used for both one-sided and two-sided testing, which leads to a significantly increased power. Second, we stress the importance of testing the property of independent and identically distributed (i.i.d.) VaR-exceedances and propose a simple approach that explicitly tests for the presence of clusters in VaR-violation processes. Results from a simulation study indicate that our tests significantly outperform competing backtests in several distinct settings.

Keywords: Value-at-Risk; Backtesting; Monte Carlo simulation (search for similar items in EconPapers)
JEL-codes: C52 C53 C58 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:48:y:2014:i:c:p:29-41

DOI: 10.1016/j.jbankfin.2014.07.005

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