Journal of Risk

Backtesting risk methodologies from one day to one year

Gilles Zumbach


Market risk evaluation is nowadays routinely used, but surprisingly the performances of the various existing methodologies are poorly known. In this paper, we present a systematic backtesting study using 233 time series covering all geographic areas and asset classes, for time horizons ranging from one day to one year. The testing framework uses the probtiles and the relative exceedance fraction in order to compute convenient performance figures. The risk methodologies include the historical simulations, equal weight and RiskMetrics exponential moving average. Another methodology is new and has been designed specifically to deal with long risk horizons, up to one year. In particular, it captures correctly the long memory of the volatility dynamics as well as the fat tail distributions of the residuals. The results show that the new methodology outperforms systematically the existing ones at all risk horizons.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here