CCP margin backtests can hide flaws, research finds

In richer test, ‘filtered’ VAR beats five other measures

margin levels
Backtests should focus not merely on number of margin breaches, researchers argue

Backtesting of the models used to determine clearing house margin requirements needs to change its focus if margin is to do its job, two risk researchers at Singapore Exchange have argued. They claim current tests focus too heavily on breaches – the number of times losses exceed margin.

The research offers a new approach to backtesting, which assesses three other aspects of a model’s performance and finds a variant of value-at-risk outperforms five rival margin models. The researchers – Patric