Mooted VAR substitute cannot be back-tested, says top quant
Basel Committee should stick with VAR, argues Paul Embrechts of ETH Zürich
The Basel Committee on Banking Supervision has proposed replacing value-at-risk with a metric, expected shortfall, that fails to meet a key criterion of its mooted new trading book regime – it cannot be properly back-tested – according to Paul Embrechts, professor of mathematics at Eidgenössische Technische Hochschule Zürich (ETH Zürich).
In the fundamental review of its Basel 2.5 trading book capital rules, published in May last year, the Basel Committee proposed getting rid of VAR – a metric
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