Backtesting Trading Risk of Commercial Banks Using Expected Shortfall

30 Pages Posted: 24 May 2008

See all articles by Woon K. Wong

Woon K. Wong

IMRU, Cardiff Business School


This paper uses saddlepoint technique to backtest the trading risk of commercial banks using expected shortfall. It is found that four out of six US commercial banks have excessive trading risks. Monte Carlo simulation studies show that the proposed backtest is very accurate and powerful even for small test samples. More importantly, risk managers can carry out the proposed backtest based on any number of exceptions, so that incorrect risk models can be promptly detected before any further huge losses are realized.

Keywords: Value-at-Risk, expected shortfall, backtesting, saddlepoint technique

JEL Classification: G32

Suggested Citation

Wong, Woon K., Backtesting Trading Risk of Commercial Banks Using Expected Shortfall. Journal of Banking and Finance, Forthcoming. Available at SSRN:

Woon K. Wong (Contact Author)

IMRU, Cardiff Business School ( email )

Cardiff CF10 3EU
United Kingdom

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics