The Risk Map: A New Tool for Validating Risk Models

Gilbert Colletaz (), Christophe Hurlin and Christophe Perignon ()
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Gilbert Colletaz: LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper presents a new method to validate risk models: the Risk Map. This method jointly accounts for the number and the magnitude of extreme losses and graphically summarizes all information about the performance of a risk model. It relies on the concept of a super exception, which is de.ned as a situation in which the loss exceeds both the standard Value-at-Risk (VaR) and a VaR de.ned at an extremely low coverage probability. We then formally test whether the sequences of exceptions and super exceptions are rejected by standard model validation tests. We show that the Risk Map can be used to validate market, credit, operational, or systemic risk estimates (VaR, stressed VaR, expected shortfall, and CoVaR) or to assess the performance of the margin system of a clearing house.

Keywords: Financial Risk Management; Tail Risk; Basel III (search for similar items in EconPapers)
Date: 2012-10-28
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00746273v1
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Citations: View citations in EconPapers (2)

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Journal Article: The Risk Map: A new tool for validating risk models (2013)
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