Kupiec, P.H. () Techniques for Verifying the Accuracy of Risk Measurement Models. The Journal of Derivatives, 3, This paper presents a comparative evaluation of the predictive performance of conventional univariate VaR models including unconditional normal distribution. Request PDF on ResearchGate | Techniques for Verifying the Accuracy of Risk Management Models | Risk Paul Kupiec at American Enterprise Institute.

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Profits and losses are expressed in monetary units and represent value changes in a portfolio. All material on this site has been provided by the respective publishers and authors. Please note that corrections may take a couple of weeks to filter through the various RePEc services.

Select the China site in Chinese or English for best site performance. For a given test confidence level, a straightforward accept-or-reject result in this case is to fail the VaR model whenever x is outside the test confidence interval for technjques expected number of exceptions.

Financial Risk Manager Handbook. That is, any number of exceptions from 0 to xtechnique the cumulative probability up to x. Check on the provider’s web page whether it is in fact available. CiteULike is a free online bibliography manager.

The VaR limits must be produced from existing VaR models. Likes beta This copy of the article hasn’t been liked by anyone yet. It helps verifyign and postgraduates.

You can help correct errors and omissions. General contact details of provider: Kupuec VaR model fails the test if this likelihood ratio exceeds a critical value.

Kupiec Paul – Techniques for Verifying the Accuracy of Risk Measurement Models

Check below whether another version of this item is available online. The automated translation of this page is provided by a general purpose third party translator tool. VaR is an estimate of how much value a portfolio can lose in a given time period with a given confidence level.


Princeton University Press, In practice, many different metrics and statistical tests are used to identify VaR models that are performing poorly or performing better. You can combine this statistic with the frequency POF test to get a conditional coverage CC mixed test:. This test is asymptotically distributed as a chi-square variable with 2 degrees of freedom.

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Checking only the first exception leaves much information out, specifically, whatever happened after the first exception is ignored. Click here to see To view all translated materials including this page, select Country from the country navigator on the bottom of this page.

For many portfolios, especially trading portfolios, VaR is computed daily. If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item.

This is machine translation Translated by. Some citation styles add the source URL, which you may not want. Setup a permanent sync to delicious. RePEc uses bibliographic data supplied by the respective publishers.

Overview of VaR Backtesting Market risk is the risk of losses in positions arising from movements in market prices. You can help adding them by using this form. Techniques for verifying the accuracy of risk measurement models. This allows to link your profile to this item. Kupiec introduced a variation on the binomial test called the proportion of failures POF test.


Read about how we use cookies. Select a Web Site Choose a web site to get translated content where available and see local events and offers. Only too many failures lead to model rejections. The TUFF test is also based on a likelihood ratio, but the underlying distribution is a geometric distribution.

Techniques for verifying the accuracy of risk measurement models – EconBiz

Using exact probabilities from the binomial kupief or a normal approximation, the bin function uses a normal approximation. It is unlikely that too many exceptions come from a correct VaR model.

A variation on the binomial test proposed by the Basel Committee is the traffic light test or three zones test. You can also specify a CiteULike article id. Too few exceptions might be a sign that the VaR model is too conservative. Click the button below to return to the English version of the page.

CiteULike: Techniques for Verifying the Accuracy of Risk Measurement Models

This statistic is asymptotically distributed as a chi-square variable with 1 degree of freedom. Translated by Mouseover text to see original. The TUFF test looks at when the kupjec rejection occurred. By computing the probability of observing x exceptions, you can compute the probability of wrongly rejecting a good model when x exceptions occur.