Pitfalls in backtesting Historical Simulation VaR models

Journal of Banking and Finance

Volumn 36, Issue 8, 2012, Pages 2233-2244

  Escanciano, Juan Carlos ^a   Pei, Pei ^a,b  

^a INDIANA UNIVERSITY   (United States)

^b CENTRAL UNIVERSITY OF FINANCE AND ECONOMICS   (China)

Author keywords

Backtesting; Basel Accord; Conditional quantile; Market risk capital requirements; Risk management; Value at Risk

Indexed keywords

EID: 84862185116     PISSN: 03784266     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jbankfin.2012.04.004     Document Type: Article

References (37)

1. Andersen T.G., Bollerslev T., Chirstoffersen P.F., Diebold F.X. Volatility and correlation forecasting. Handbook of Economic Forecasting 2006, vol. 1. North-Holland, Amsterdam. first ed.
2. Barone-Adesi G., Bourgoin F., Giannopoulos K. Don't look back. Risk 1998, 11:100-104.
3. Barone-Adesi G., Giannopoulos K., Vosper L. VaR without correlations for nonlinear portfolios. Journal of Futures Markets 1999, 19:583-602.
4. Barone-Adesi G., Giannopoulos K. Non-parametric VaR techniques: myths and realities. Economic Notes 2001, 30:167-181.
5. Basel Committee on Banking Supervision, 1996a. Amendment to the capital accord to incorporate market risks. Bank for International Settlements.
6. Basel Committee on Banking Supervision, 1996b. Supervisory framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements. Bank for International Settlements.
7. Basel Committee on Banking Supervision, 2011. Revision to the Basel II market risk framework. Bank for International Settlements.
8. Berkowitz J. Testing density forecasts with applications to risk management. Journal of Business and Economic Statistics 2001, 19(4):465-474.
9. Berkowitz J., Christoffersen P.F., Pelletier D. Evaluating value-at-risk models with desk-level data. Management Science 2011, 57(12):2213-2227.
10. Berkowitz J., O'Brien J. How accurate are value at risk models at commercial banks?. Journal of Finance 2002, 57(3):1093-1111.
11. Campbell, S.D., 2005. A review of backtesting and backtesting procedures. Working paper, Federal Reserve Board.
12. Carrasco M., Chen X. Mixing and moment properties of various GARCH and stochastic volatility models. Econometric Theory 2002, 18:17-39.
13. Christoffersen P.F. Evaluating interval forecasts. International Economic Review 1998, 39:841-862.
14. Christoffersen P.F., Pelletier D. Backtesting value-at-risk: a duration-based approach. Journal of Financial Econometrics 2004, 2:84-108.
15. Delgado M.A., Escanciano J.C. Nonparametric tests for conditional symmetry in dynamic models. Journal of Econometrics 2007, 141:652-682.
16. Doukhan P. Mixing: properties and examples. Lecture Notes in Statistics 1994, vol. 85. Springer-Verlag, New York.
17. Engle R.F., Manganelli S. CAViaR: conditional autoregressive value at risk by regression quantiles. Journal of Business and Economic Statistics 2004, 22(4):367-381.
18. Escanciano J.C., Olmo J. Backtesting parametric value-at-risk with estimation risk. Journal of Business and Economics Statistics 2010, 28:36-51.
19. Escanciano J.C., Olmo J. Robust backtesting tests for value-at-risk models. Journal of Financial Econometrics 2011, 9:132-161.
20. Francq C., Zakoi{dotless}̈an J.-M. Maximum likelihood estimation of pure GARCH and ARMA-GARCH processes. Bernoulli 2004, 10(4):605-637.
21. Francq C., Zakoi{dotless}̈an J.-M. Mixing properties of a general class of GARCH(1,1) models without moment assumptions. Econometric Theory 2006, 22:815-834.
22. Gourieroux C., Jasiak J. Dynamic quantile models. Journal of Econometrics 2008, 147:198-205.
23. Hansen B.E. Autoregressive conditional density estimation. International Economic Review 1994, 35:705-730.
24. Koenker R., Xiao Z. Quantile autoregression. Journal of the American Statistical Association 2006, 101:980-990.
25. Kupiec P. Techniques for verifying the accuracy of risk measurement models. The Journal of Derivatives 1995, 3:73-84.
26. Ledwina T. Data-driven version of Neyman's smooth test of fit. Journal of the American Statistical Association 1994, 89:1000-1005.
27. Li W.K., Ling S., McAleer M. Recent theoretical results for time series models with GARCH errors. Journal of Economic Surveys 2002, 16:245-269.
28. Li Q., Racine J.S. Nonparametric Econometrics: Theory and Practice 2007, Princeton University Press, New Jersey.
29. Neyman J. Smooth test for goodness of fit. Scandinavian Aktuarietidskr 1937, 20:150-199.
30. Jorion P. Value at Risk: The New Benchmark for Managing Financial Risk 2006, McGraw-Hill, New York. third ed.
31. RiskMetrics-Technical Document 1996, JP Morgan, Morgan Guaranty Trust Company, New York. fourth ed.
32. Pérignon C., Smith D.R. A new approach to comparing VaR estimation method. The Journal of Derivatives 2008, 16(2):54-66.
33. Pérignon C., Smith D.R. The level and quality of value-at-risk disclosure by commercial banks. Journal of Banking and Finance 2010, 34(2):362-377.
34. Pritsker M. The hidden dangers of historical simulation. Journal of Banking and Finance 2006, 30(2):561-582.
35. Yoshihara K. The Bahadur representation of sample quantile for sequences of strongly mixing random variables. Statistics and Probability Letters 1995, 24:299-304.
36. Schwarz G. Estimating the dimension of a model. The Annals of Statistics 1978, 6:461-464.
37. van der Vaart A.W. Asymptotic Statistics 1998, Cambridge University Press, New York.