Evaluating VaR Forecasts under Stress - The German Experience

Abstract:     
We present an analysis of VaR forecasts and P&L-series of all 13 German banks that used internal models for regulatory purposes in the year 2001. We introduce the notion of well-behaved forecast systems, that allows to use more powerful inference on the level of conservativenessof VaR forecasts than the Basel approach based on the count of exceptions. Furthermore, we provide a series of exploratory statistical analysis tools. The results shed light on the forecast quality of VaR models of German banks in the period from the beginning of 2001 to the end of 2003.

Keywords: banking supervision, VaR, exploratory data analysis, backtesting

JEL Classifications: K23, G28

Working Paper Series