Back-testing expected shortfall: mission possible?

Expected shortfall is hard to back-test, critics say – but the search for a solution is underway

chart-with-long-tail
Back-testing woes: regulatory checks will focus on body of the distribution

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

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

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 Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net 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