Quants tout improved expected shortfall backtest
Measure aims to provide better gauge of VAR violations
A new paper by a group of quants advocates a revised backtest for expected shortfall (ES) models – one that could offer banks with large trading operations a more accurate view of aggregate risk across desks, and, they hope, could be of interest for regulators when gauging aggregate risk across the financial system.
While value-at-risk has been banks’ standard gauge for market risk for many years, expected shortfall – also known as conditional VAR – has risen to prominence since the crisis
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