Validating EPE

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Sometimes terminology constrains our thought processes in unfortunate ways. I fear that back-testing is a current example of this. Within the Basel II context, back-testing seems to have become synonymous with empirical validation. Unfortunately, back-testing carries some very unhelpful baggage in the context of verifying trading credit exposure simulation models. Having been introduced in the context of verifying the performance of value-at-risk models, back-testing is widely viewed as a

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