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Value-at-risk forecasts under scrutiny—the German experience
Year Of Publication: 2006
Month Of Publication: September
Pages: 24
Download Count: 6
View Count: 1971
Comment Num: 0
Language: English
Who Can Read: Free
Date: 5-2-2010
Publisher: Administrator
We present an analysis of the VaR forecasts and the P&L-series of all 12 German banks
that used internal models for regulatory purposes throughout the period from the beginning of
2001 to the end of 2004. One task of a supervisor is to estimate the “recalibration factor”, i.e., by
how much a bank over- or underestimates its VaR. The Basel traffic light approach to backtesting,
which maps the count of exceptions in the trailing year to a multiplicative penalty factor, can be
viewed as a way to estimate the “recalibration factor”. We introduce techniques that provide a
much more powerful inference on the recalibration factor than the Basel approach based on the
count of exceptions. The notions “return on VaR (RoVaR)” and “well-behaved forecast system”
are keys to linking the problem at hand to the established literature on the evaluation of density
forecasts. We perform extensive bootstrapping analyses allowing (1) an assessment of the accuracy
of our estimates of the r
Jaschke, Stefan R. Sign in to follow this author
Stahl, Gerhard Sign in to follow this author
Stehle, Richard Sign in to follow this author
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