Backtesting
Why multi-asset managers shouldn’t count on the past
Risk models are backward-looking but history won’t repeat itself
Beware simulation sins
Aspect Capital’s Stephen Wood picks out the most common pitfalls in simulations of quantitative investment strategies
Basel group shake-up has banks hoping for FRTB changes
Barger and Durand replaced by BoE's Nesbitt; banks want fresh look at P&L test
FRTB: Basel guidance on backtesting frustrates dealers
Dealers blast “illogical” carve-outs for backtesting exceptions
Stretched margins: growing pains for Simm
The standard initial margin model could become more strained as its use expands in 2017
Industry friction on initial margin model backtesting
NFA said to have set 10-day standard; other regulators applying different approach
See the error of your VARs
Commonly-used VAR estimation method shown to underestimate risk
The probability of backtest overfitting
The authors propose a general framework to assess the probability of backtest overfitting (PBO).
Value-at-risk bounds for multivariate heavy tailed distribution: an application to the Glosten–Jagannathan–Runkle generalized autoregressive conditional heteroscedasticity model
This paper aims to derive VaR bounds for the portfolios of possibly dependent financial assets for heavy tailed Glosten–Jagannathan–Runkle generalized autoregressive conditional heteroscedasticity processes using extreme value theory copulas.
The P&L attribution mess
FRTB model approval regime dogged by confusion and controversy
Research uncovers new sources of financial model risk
Past performance of financial models is no guarantee of future success, two forthcoming papers suggest
Capital sums set to drive FRTB desk decisions
Using Volcker desk structure may hurt model approval chances, banks say
Testing interest rate models for Solvency II applications
Alexey Botvinnik and Vladimir Ostrovski propose a validation method for interest rate models
Cutting Edge introduction: No more shortfalls?
Academics develop expected shortfall backtest to compare standardised and internal models
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
What is the best risk measure in practice? A comparison of standard measures
This paper revisits the properties of risk measures and checks VaR, ES and expectiles with regard to whether or not they enjoy these properties.
Backtesting Solvency II value-at-risk models using a rolling horizon
The author of this paper performs an analysis on a review of the equity stress parameter for Dutch pension funds.
Backtesting has a place in structured products market
Regulatory panel suggests backtesting internally is best practice
Back-testing expected shortfall
Three easy-to-implement methods for back-testing expected shortfall
Credit exposure models backtesting for Basel III
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas and Andreas Nawroth incorporate these guidelines into a…
FCA could look to Consob for probability test
UK regulator adjudicates on Credit Suisse and Yorkshire Building Society