Backtesting Value-at-Risk: A Duration-Based Approach

Posted: 29 Feb 2008  

Peter Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School; University of Aarhus - CREATES

Denis Pelletier

North Carolina State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2004

Abstract

Financial risk model evaluation or backtesting is a key part of the internal model`s approach to market risk management as laid out by the Basle Committee on Banking Supervision. However, existing backtesting methods have relatively low power in realistic small sample settings. Our contribution is the exploration of new tools for backtesting based on the duration of days between the violations of the Value-at-Risk. Our Monte Carlo results show that in realistic situations, the new duration-based tests have considerably better power properties than the previously suggested tests.

Keywords: GARCH, kurtosis, risk model evaluation

Suggested Citation

Christoffersen, Peter and Pelletier, Denis, Backtesting Value-at-Risk: A Duration-Based Approach ( 2004). Journal of Financial Econometrics, Vol. 2, Issue 1, pp. 84-108, 2004. Available at SSRN: https://ssrn.com/abstract=821715

Peter Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5P 3C4
Canada
416-946-5511 (Phone)

HOME PAGE: http://www.christoffersen.com

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

University of Aarhus - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Denis Pelletier

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

Paper statistics

Abstract Views
1,155