Back-testing expected shortfall: mission possible?
Expected shortfall is hard to back-test, critics say – but the search for a solution is underway
More conservative, but harder to check – that, in a nutshell, is the consensus on expected shortfall, the mooted replacement for value-at-risk as the basis for modelled trading book capital requirements. The question is whether a way can be found to back-test the measure and, if not, how big a problem that is.
Expected shortfall was proposed as a replacement for VAR in the Basel Committee on Banking Supervision's initial draft of its trading book capital overhaul in May 2012 – the Fundamental
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