Abstract
This article develops a new test to evaluate value-at-risk (VaR) forecasts. VaR is a standard risk measure widely utilized by financial institutions and regulators, yet estimating VaR is a challenging problem, and popular VaR forecast relies on unrealistic assumptions. Hence, assessing the performance of VaR is of great importance. We propose the geometric-VaR test which utilizes the duration between the violations of VaR as well as the value of VaR. We conduct a Monte Carlo study based on desk-level data and we find that our test has high power against various alternatives.
Original language | English |
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Pages (from-to) | 725-745 |
Number of pages | 21 |
Journal | Journal of Financial Econometrics |
Volume | 14 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Sep 2016 |
Externally published | Yes |
Keywords
- Backtesting
- Duration
- Risk management
- Value at risk
- Volatility