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A review of backtesting and backtesting procedures

2007; Volume: 9; Issue: 2 Linguagem: Inglês

10.21314/jor.2007.146

1755-2842

Sean Campbell,

Statistical Methods in Clinical Trials

This paper reviews a variety of backtests that examine the accuracy of value-at-risk (VAR) measures. These backtesting procedures are reviewed from both a statistical and a risk management perspective. The properties of unconditional coverage and independence are defined and their relation to backtesting procedures is discussed. Backtests are then classified by whether they examine the unconditional coverage property, independence property, or both properties of a VAR measure. Backtests that examine the accuracy of a VAR model at several percentiles, rather than a single percentile, are also outlined and discussed. The statistical power properties of these tests are examined in a simulation experiment.