A New Approach to Comparing VaR Estimation Methods
Posted: 20 Apr 2007 Last revised: 21 May 2019
Date Written: November 1, 2008
We develop a novel backtesting framework based on multidimensional Value-at-Risk (VaR) that focuses on the left tail of the distribution of the bank trading revenues. Our coverage test is a multivariate generalization of the unconditional test of Kupiec (Journal of Derivatives, 1995). Applying our method to actual daily bank trading revenues, we find that non-parametric VaR methods, such as GARCH-based methods or filtered Historical Simulation, work best for bank trading revenues.
Keywords: Value-at-Risk, Bank Trading Revenue, Backtesting, Coverage Test
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation