Technical paper/Backtesting
Incorporating volatility in tolerance intervals for pair-trading strategy and backtesting
This paper incorporates volatility forecasting via the exponentially weighted moving average model into traditional tolerance limits for pair-trading strategies, and illustrates how the proposed method helps uncover arbitrage opportunities via the daily…
A comprehensive evaluation of value-at-risk models and a comparison of their performance in emerging markets
This paper aims to evaluate the performance of different value-at-risk (VaR) calculation methods, allowing the authors to identify models that are valid for use in emerging markets.
Back to backtesting: integrated backtesting for value-at-risk and expected shortfall in practice
This paper aims to reflect the current state of the discussion on the validation of market risk forecasts by means of backtesting.
Systematic testing of systematic trading strategies
This study reviews the various statistical methodologies that are in place to test multiple systematic trading strategies and implements these methodologies under simulation with known artificial trading rules in order to critically compare and evaluate…
New backtests for unconditional coverage of expected shortfall
In this paper, the authors present a new backtest for the unconditional coverage property of expected shortfall.
Estimation window strategies for value-at-risk and expected shortfall forecasting
This paper analyzes the impact of different estimation window strategies, including structural breaks and forecast combinations, on forecasting common risk measures such as VaR and ES.
Shrunk volatility value-at-risk: an application on US balanced portfolios
In this paper, the authors adopt a new method of predicting VaR, to estimate balanced portfolios’ VaR.
The validation of filtered historical value-at-risk models
In this paper, the authors examine the problem of validating and calibrating FHS VaR models, focussing in particular on the Hull and White (1998) approach with EWMA volatility estimates, given its extended use in the industry.
Optimising VAR and terminating Arnie-VAR
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Performance testing of margin models using time series similarity
This paper proposes a performance test based on empirical similarity that would account for margin shortfall, procyclicality and efficiency in a single score.
Statistical testing of DeMark technical indicators on commodity futures
This paper examines the performance of three DeMark indicators over twenty-one commodity futures markets and ten years of daily data.
Correctness of backtest engines
In this paper, the authors provide tools to test the correctness of backtest engines for setups with at most one entry and one exit.
A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
The probability of backtest overfitting
The authors propose a general framework to assess the probability of backtest overfitting (PBO).
Value-at-risk bounds for multivariate heavy tailed distribution: an application to the Glosten–Jagannathan–Runkle generalized autoregressive conditional heteroscedasticity model
This paper aims to derive VaR bounds for the portfolios of possibly dependent financial assets for heavy tailed Glosten–Jagannathan–Runkle generalized autoregressive conditional heteroscedasticity processes using extreme value theory copulas.
Testing interest rate models for Solvency II applications
Alexey Botvinnik and Vladimir Ostrovski propose a validation method for interest rate models
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
What is the best risk measure in practice? A comparison of standard measures
This paper revisits the properties of risk measures and checks VaR, ES and expectiles with regard to whether or not they enjoy these properties.
Backtesting Solvency II value-at-risk models using a rolling horizon
The author of this paper performs an analysis on a review of the equity stress parameter for Dutch pension funds.
Back-testing expected shortfall
Three easy-to-implement methods for back-testing expected shortfall
Credit exposure models backtesting for Basel III
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas and Andreas Nawroth incorporate these guidelines into a…