Expected shortfall is jointly elicitable with valueatrisk. Lusem thesis template lund university publications. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the wellknown value at risk. This encourages us to use both conditional and unconditional forecasts backtests for expected shortfall es in 8 indices of listed european real estate securities and real estate investment trusts reits. Accounting for tail risk, caepr working papers 2015001, center for applied economics and policy research, department of economics, indiana university bloomington. More important, she investigates the issue related to the backtesting of expected shortfall. Fissler, ziegel and gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall elicitability is a critical issue in the. Var to an expected shortfall risk measurement approach. An expected shortfall approach timotheos angelidis department of economics, university of crete, gallos campus,74100 rethymno, greece email address. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the.
In particular, we propose the use of dieboldmariano tests, and show how they can be implemented for expected shortfall es, based on the recent result of fissler and ziegel 2015 that es is jointly elicitable with value at risk. If the var is 10 million and the es is 12 million, we know the. Backtesting value at risk and expected shortfall books. The model itself is a source of risk in getting inadequate risk estimates, so assessing the model risk of risk measures becomes vital as could be seen during the global financial crisis when the pitfalls of inadequate modelling were revealed.
A var backtest, specified by the vartest namevalue pair argument, must be run for the number of failures numfailures, and a standalone conditional test is performed. This situation is mainly due to the difficulty of finding an es back. An expected shortfall approach timotheos angelidis department of economics. All books are in clear copy here, and all files are secure so dont worry about it.
You can find a backtest for expected shortfall detailed in the paper below kerkhof, f. In this paper it is argued that backtesting of expected shortfall or the trading book model from which it is calculated can be based on a simultaneous multinomial test of valueatrisk var. Pdf we propose a new backtesting framework for expected shortfall that could be used by the. Sep 10, 2018 in a recent paper, acerbi and szekely risk magazine, 7681, 2014 presented three methods to test expected shortfall, and this is the first empirical application of that paper on emerging markets. Read online backtesting valueatrisk models book pdf free download link book now. Backtesting value at risk and expected shortfall springer. For risk forecasts like valueatrisk var and expected shortfall es 1, the forecasting process often involves sophisticated models.
In addition, the comparative backtesting framework could be used by banks internally as well as by researchers to guide selection of forecasting methods. This example shows an expected shortfall es backtesting workflow using simulation and the use of esbacktestbysim object. Top 4 download periodically updates software information of backtesting full versions from the publishers, but some information may be slightly outofdate using warez version, crack, warez. October 27, 2014 abstract the discovery in 2011 that the expected shortfall es is not elicitable, di used the erroneous belief that it could not be backtested. Model risk of expected shortfall henley business school. Pdf individual and flexible expected shortfall backtesting. Expected shortfall es backtesting workflow using simulation.
Abstractevents such as the european sovereign debt crisis, terrorism and brexit cause more uncertainty and volatility in capital markets. Wong wk 2010 backtesting valueatrisk based on tail losses. This example shows an expected shortfall es backtesting workflow with no model distribution information and the. Thus x refers to the portfolio return conditional on r expected shortfall es 1, the forecasting process often involves sophisticated models.
Backtesting trading risk of commercial banks using expected. Mar 22, 2017 abstractevents such as the european sovereign debt crisis, terrorism and brexit cause more uncertainty and volatility in capital markets. Overview of expected shortfall backtesting expected shortfall es is the expected loss on days when there is a valueatrisk var failure. Finding a calibration function for expected shortfall a natural approach to backtesting expected shortfall estimates is to look for a calibration function, that is a function h such that ehest t. Three easytoimplement methods for backtesting expected shortfall the discovery that expected shortfall es is not elicitable propagated the belief that it could not be backtested and aroused a. Backtesting, valueatrisk, expected shortfall, volatility forecasting, arch models. Individual and flexible expected shortfall backtesting article pdf available in journal of risk model validation 73.
In this note, we present a simple, practical and easily implementable coverage test to backtest any spectral risk measure. We propose a new backtesting framework for expected shortfall that could be used by the regulator. To put it bluntly, the committee is now facing a dilemma of. In the second chapter we evaluate the performance of the backtesting methods and their reliability. This misconception aroused a number of criticisms to the recent decision of. Embraced by the basel accords, valueatrisk and expected shortfall are the leading measures of financial risk. Backtesting trading risk of commercial banks using. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory.
If the var is 10 million and the es is 12 million, we know the expected loss tomorrow. This example shows how to perform estimation and backtesting of expected shortfall models. Workflow for expected shortfall es backtesting by du and escanciano this. With about 250 trading days in a year, observations. Significance of the test under the assumption that the distributional assumptions are correct, the expected value of the test statistic z cond, assuming at least one var failure, is 0. Stavros degiannakis department of statistics, athens university of economics and business, 76, patision. Valueatrisk var and expected shortfall es must be estimated together because the es estimate depends. Var and expected shortfall es1 are of great importance, since an accurate risk estimate can help. Extreme value theory, skewed distributions, expected shortfall, backtesting, filtered historical. Expected shortfall es backtesting workflow with no model distribution information. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes, replacing the wellknown valu. Wong wk 2008 backtesting trading risk of commercial banks using expected shortfall.
If nothing happens, download the github extension for visual studio and try again. Expected shortfall backtest create an expected shortfall es backtest model and run suite of es backtests expected shortfall es provides an estimate of the expected loss on days when there is a var failure. The conditional test accepts the model only when both the var test and the standalone conditional test accept the model. Backtesting bootstrap valueatrisk and expected shortfall. Indeed, expectiles are the only elicitable lawinvariant coherent risk measures. Conditional expected shortfall es backtest by acerbi and. Pdf we propose a new backtesting framework for expected shortfall that could be used by the regulator. Hence, banks now face the paradox of using the es for the computation of their market risk capital requirements and the valueatrisk for the backtesting. The main contribution of the work is the application of test 1 and test 2 developed by acerbi and szekely.
Robust forecasting and backtesting of value at risk var and. Download fulltext pdf backtesting expected shortfall. The discussion focuses on three risk measures, value at risk, expected shortfall and expectiles, and is supported by a simulation study and data analysis. Unlike its preceding risk metrics, the backtesting approach for is still underdeveloped due to the claim that it is not elicitable. We use stock market data to analyze the quality of alternative models and procedures to estimate expected shortfall es at different signi. This example shows an expected shortfall es backtesting workflow with no model distribution information and the use of esbacktest object. Expected shortfall is jointly elicitable with valueat. Backtesting valueatrisk and expected shortfall in the. Expected shortfall estimation and backtesting matlab. Backtesting expected shortfall a garchevtcopula approach masters thesis, 2015, 97 pages.
Valueatrisk var and expected shortfall es must be estimated together because the es estimate depends on the var estimate. The model itself is a source of risk in getting inadequate. Wu wb 2007 mestimation of linear models with dependent errors. Backtesting software free download backtesting top 4. Using historical data, this example estimates var and es over a test window, using historical and parametric var approaches. An application to emerging market stock indices article pdf available in risk management 2. Backtesting extreme value theory models of expected shortfall. Download backtesting valueatrisk models book pdf free download link or read online here in pdf. In this note, we comment on the relevance of elicitability for backtesting risk measure estimates. October 27, 2014 abstract the discovery in 2011 that the expected shortfall es is not elicitable, di used the erroneous belief. Backtesting valueatrisk models pdf book manual free download. Backtesting valueatrisk models pdf book manual free. We employ daily stock index returns from the morgan stanley capital international inc.
The main contribution of the work is the application of test 1 and test 2 developed by acerbi and szekely 2014 on different models and for five global market indexes. In particular, we propose the use of dieboldmariano tests, and. Accounting for tail risk article pdf available in management science 634 march 2016 with 1,684 reads. Abstract in recent years, the question of whether expected shortfall is possible to backtesthasbeenahottopicafterthe. Our test gives a single decision at a specified confidence level and is perfectly. Expectiles offset the weaknesses of valueatrisk var and expected shortfall. Expected shortfall es stresstesting var and es use in regulatory capital conclusion matlab var or expected shortfall. The basel committee on banking supervision bis has recently sanctioned expected shortfall es as the market risk measure to be used for banking regulatory purposes. Backtesting expected shortfall carlo acerbi and balazs szekelyy msci inc. This thesis focuses on the estimation, evaluation and applications of the value at risk and expected shortfall risk measures. It consists of four main chapters corresponding to four research papers. The discovery in 2011 that the expected shortfall es.
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