A quantitative evaluation johan engvall kth royal institute of technology school of engineering sciences. You can find a backtest for expected shortfall detailed in the paper below kerkhof, f. Our test gives a single decision at a specified confidence level and is perfectly consistent with the binomial test for var. Accounting for tail risk article pdf available in management science 634 march 2016 with 1,702 reads how we measure reads. Backtesting value at risk and expected shortfall books. Instead of looking at the estimated capital reserve and the realised cash. Financial mathematics credits master program me in. Accounting for tail risk zaichao duy southwestern university of finance and economics, china juan carlos escancianoz indiana university, united states of america august 24, 2015 abstract the basel committee on banking supervision bis has recently sanctioned ex. An expected shortfall approach timotheos angelidis department of economics.
Hsiao yen lok heriot watt university di erent methods of backtesting var and es may 17, 2015 14 26. The main contribution of the work is the application of test 1 and test 2 developed by acerbi and szekely 2014 on different models and for five global market indexes. Indeed, the current basel proposal to backtest es at the 97. This example shows how to perform estimation and backtesting of expected shortfall models. Backtesting value at risk and expected shortfall simona roccioletti auth. Valueatrisk var and expected shortfall es must be estimated together because the es estimate depends on the var estimate. Carlo acerbi and balazs szekely introduce a backtest for es that minimises such sensitivity. Comparative backtesting of the expected shortfall by dr. Backtesting expected shortfall a garchevtcopula approach marcel jager masters thesis mathematics applied mathematics. Valueatrisk, expected shortfall, backtesting, basel iii, frtb, risk. Expected shortfall es backtesting workflow using simulation. Indeed the current basel proposal to backtest es at the 97. Backtesting valueatrisk and expected shortfall in the.
Instead of looking at the estimated capital reserve and the realised cashflow separately, one could bind them into the secured position, for. Pdf a simple traffic light approach to backtesting. A checklist of frtb priorities changes to market risk. Expected shortfall, backtesting, mincerzarnowitz regression, forecast evaluation, model. Recent results have shown backtests of expected shortfall es are necessarily approximated, in the sense that they are unavoidably sensitive to possible errors in the prediction of valueatrisk. Backtesting trading risk of commercial banks using expected. However, new research has indicated that backtesting of expected shortfall is in fact possible and that it does not have to be very difficult. That is, the expected loss on the days when the loss exceeds var. Backtesting general spectral risk measures with application to expected shortfall. Expected shortfall estimation and backtesting matlab. A simple traffic light approach to backtesting expected shortfall. Nevertheless some recent backtesting methods have been proposed including, but not limited to, 1, 6, 8, 9, 11, 15. This example shows an expected shortfall es backtesting workflow using simulation and the use of esbacktestbysim object. Model risk of expected shortfall lancaster university.
Overview of expected shortfall backtesting expected shortfall es is the expected loss on days when there is a valueatrisk var failure. This encourages us to use both conditional and unconditional forecasts backtests for expected shortfall es in 8 indices of listed european real estate securities and real estate investment trusts reits. In this note, we comment on the relevance of elicitability for backtesting risk measure estimates. Backtesting violations application testing coverage independence sp500 esbacktesting problems stresstesting violationratios vr1is expected, but how can we ascertain whether any other value is statistically signi. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the wellknown valu. Acerbi has several backtests for expected shortfall. One of the proposed tests doesnt even require the storage of additional data.
This example shows an expected shortfall es backtesting workflow using the esbacktestbysim object. The second backtest is based on this equality does anybody know how to derive this equality. This situation is mainly due to the difficulty of finding an es back. Embraced by the basel accords, valueatrisk and expected shortfall are the leading measures of financial risk. Pdf backtesting general spectral risk measures with. Individual and flexible expected shortfall backtesting. This change is motivated by the appealing theoretical properties of es as a measure of risk and the poor properties of var. Create an expected shortfall es backtest model and run suite of es backtests.
Backtesting trading risk of commercial banks using. In this paper we propose an expected shortfall es backtesting approach that uses the dispersion of a truncated distribution by the estimated valueatrisk var upper limit, does not limit the approach to the gaussian case and allows us to test if each individual var violation is significantly different from the es. These tests generally require the storage of more information, but introduce no conceptual limitations nor computational di culties of any sort. Yamai and yoshiba 2002c show that expected shortfall.
Pdf on oct 24, 2017, daniel velasquezgaviria and others published backtesting expected shortfall. Hsiao yen lok heriot watt university di erent methods of backtesting. Backtesting bootstrap valueatrisk and expected shortfall. The corresponding var data and var confidence levels are in var and varlevel. Expectiles offset the weaknesses of valueatrisk var and expected shortfall. With about 250 trading days in a year, observations correspond to around 4 years of data. Shortfall measures the expected loss in the tail of the distribution. Consider a portfolio a ected by risk factors, and the goal is to compute risk estimates such as var and es. Expected shortfall is the conditional expectation of loss given that the loss is beyond the var level. Stavros degiannakis department of statistics, athens university of economics and business, 76, patision. Backtesting extreme value theory models of expected shortfall. Contribute to bayerseesback development by creating an account on github. In the second equation we have an extra continuity correction term.
More important, she investigates the issue related to the backtesting of expected shortfall. If the var is 10 million and the es is 12 million, we know the expected loss tomorrow. Instead of looking at the estimated capital reserve and the realised cashflow separately, one. In particular, we propose the use of dieboldmariano tests, and show how they can be implemented for expected shortfall es, based on the recent result of fissler and ziegel 2015 that es is jointly elicitable with value at risk. Unlike its preceding risk metrics, the backtesting approach for is still underdeveloped due to the claim that it is not elicitable. You can find a backtest for expected shortfall detailed in the paper below. However, unlike the case of var, there is no wellestablished backtesting framework for expected shortfall.
To put it bluntly, the committee is now facing a dilemma of. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the wellknown value at risk var. Accounting for tail risk, forthcoming in management science. Hence, banks now face the paradox of using the es for the computation of their market risk capital requirements and the valueatrisk for the backtesting. Can anybody explain, why it makes sense, especially. An expected shortfall approach timotheos angelidis department of economics, university of crete, gallos campus,74100 rethymno, greece email address. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the wellknown valueatrisk var. A simple traffic light approach to backtesting expected. Abstractevents such as the european sovereign debt crisis, terrorism and brexit cause more uncertainty and volatility in capital markets. Workflow for expected shortfall es backtesting by du and escanciano.
Because of that, the backtests as well as the related statistical properties of risk estimators are intensively studied and the estimation techniques are being. That is, es does not only tell us about the probability of large losses. Pdf we propose a new backtesting framework for expected shortfall that could be used by the regulator. The purpose of this thesis is to show that expected shortfall is in fact backtestable by providing six different examples of how a backtest could be designed without exploiting the property of elicitability. October 27, 2014 abstract the discovery in 2011 that the expected shortfall es is not elicitable, di used the erroneous belief that it could not be backtested. For more information, see esbacktest, esbacktestbysim, and esbacktestbyde. Indeed, expectiles are the only elicitable lawinvariant coherent risk measures. The tests supported in the esbacktestbysim object require as inputs not only the test data portfolio, var, and es data, but also the distribution information of the model being tested. Particular attention is given to the special case of expected shortfall. Backtesting marginal expected shortfall and related. This misconception aroused a number of criticisms to the recent decision of.
Expected shortfall is jointly elicitable with valueatrisk. We propose a new backtesting framework for expected shortfall that could be used by the regulator. In this note, we present a simple, practical and easily implementable coverage test to backtest any spectral risk measure. Using historical data, this example estimates var and es over a test window, using historical and parametric var approaches.
Contents risk measures and their properties elicitability backtesting var and es empirical analysis matlab code. Expected shortfall es provides an estimate of the expected loss on days when there is a var failure. Expected shortfall backtest create an expected shortfall es backtest model and run suite of es backtests expected shortfall es provides an estimate of the expected loss on. Rockafellar and uryasev, acerbi and tasche, define expected shortfall es, aka cvar, a coherent measure of risk 2000s var and es are widely adopted by financial institutions as complementary tools 20.
Backtesting value at risk and expected shortfall simona. An application to emerging market stock indices find, read and cite all the research you. Finding a calibration function for expected shortfall a natural approach to backtesting expected shortfall estimates is to look for a calibration function, that is a function h such that ehest t. Backtesting general spectral risk measures with application. Accounting for tail risk, caepr working papers 2015001, center for applied economics and policy research, department of economics, indiana university bloomington. First of all, we introduce three modelfree, nonparametric backtest methodologies for expected shortfall which are shown to be more powerful than the basel v ar. Regression based expected shortfall backtesting arxiv. Var to an expected shortfall risk measurement approach. Backtesting expected shortfall carlo acerbi and balazs szekelyy msci inc.
840 1249 1380 510 796 68 450 1157 94 1514 85 764 951 660 792 822 175 50 546 630 425 66 928 1380 587 677 138 51 975 687 578