Kupiec, P.H. () Techniques for Verifying the Accuracy of Risk Measurement Models. The Journal of Derivatives, 3, This paper presents a comparative evaluation of the predictive performance of conventional univariate VaR models including unconditional normal distribution. Request PDF on ResearchGate | Techniques for Verifying the Accuracy of Risk Management Models | Risk Paul Kupiec at American Enterprise Institute.

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Check on the provider’s web page whether it is in fact available. For more information, see References for Jorion and bin. You can help correct errors and omissions. If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. From the properties of a binomial distribution, you can build a confidence interval for the expected number of exceptions.

Value-at-risk VaR is one of the main measures of financial risk. Overview of VaR Backtesting Market risk is the risk of losses in positions arising from movements in market prices. All material on this site has been provided by the respective publishers and authors.

The service is similar in scope to EndNote or RefWorks or any other reference manager like BibTeX, but it is a social bookmarking service for scientists and humanities researchers. Profits and losses are expressed in monetary units and represent value changes in a portfolio.


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Too few exceptions might be a sign that the VaR model is too conservative. By computing the probability of observing x exceptions, you can compute the probability of wrongly rejecting a good model when x exceptions occur. As a best practice, use more than one criterion to backtest the performance of VaR models, because all tests have strengths and weaknesses. It helps undergraduates and postgraduates.

Unlike the unconditional probability of observing an exception, Christoffersen’s test measures the dependency techniues consecutive days only. See general information about how to correct material in RePEc.

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Kupiec Paul – Techniques for Verifying the Accuracy of Risk Measurement Models

Kupiec also proposed a second test called the time until first failure TUFF. The performance of VaR models can be measured in different ways. The toolbox supports these VaR backtests: This allows to link your profile to this item. Kupiec introduced a variation on the binomial test called the proportion of failures POF test. At the closing of the following day, the actual profits and losses for the portfolio are known and can be compared to the VaR estimated the day before.


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Catalog Record: Techniques for verifying the accuracy of risk | Hathi Trust Digital Library

You can help adding them by using this form. The POF test works with the binomial distribution approach. The POF test statistic is. CiteULike organises scholarly or academic papers or literature and provides bibliographic which means it makes bibliographies for universities and higher education establishments. RePEc uses bibliographic data supplied by the respective publishers. If n is the number of days until the first rejection, the test statistic is given by. Checking only the first exception leaves much information out, specifically, whatever happened after techhniques first exception is ignored.

For a given test confidence level, a straightforward accept-or-reject result in this case is to fail the VaR model whenever x is outside the test confidence interval for the expected number of exceptions. Only too many failures lead to model rejections.

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