Backtesting for risk-based regulatory capital [An article from: Journal of Banking and Finance]

This digital document is a journal article from Journal of Banking and Finance, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In this paper we present a framework for backtesting all currently popular risk measurement methods for quantifying market risk (including value-at-risk and expected shortfall) using the functional delta method. Estimation risk can be taken explicitly into account. Based on a simulation study we provide evidence that tests for expected shortfall with acceptable low levels have a better performance than tests for value-at-risk in realistic financial sample sizes. We propose a way to determine multiplication factors, and find that the resulting regulatory capital scheme using expected shortfall compares favorably to the current Basel Accord backtesting scheme.