A New Approach to Comparing VaR Estimation Methods

Christophe Perignon () and R.D. Smith
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R.D. Smith: UQ [All campuses : Brisbane, Dutton Park Gatton, Herston, St Lucia and other locations] - The University of Queensland

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Abstract: We develop a novel backtesting framework based on multidimensional Value-at-Risk (VaR) that focuses on the left tail of the distribution of the bank trading revenues. Our coverage test is a multivariate generalization of the unconditional test of Kupiec (Journal of Derivatives, 1995). Applying our method to actual daily bank trading revenues, we find that non-parametric VaR methods, such as GARCH-based methods or filtered Historical Simulation, work best for bank trading revenues.

Keywords: Value-at-Risk; Bank Trading Revenue; Backtesting; Coverage Test (search for similar items in EconPapers)
Date: 2008-12-01
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Citations: View citations in EconPapers (30)

Published in Journal of Derivatives, 2008, 16 (2), pp.54-66. ⟨10.3905/JOD.2008.16.2.054⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00854087

DOI: 10.3905/JOD.2008.16.2.054

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