1. Nicole Seaman

    P2.T5.22.7 Value at risk (VaR) backtest

    Learning objectives: Describe backtesting and exceptions and explain the importance of backtesting VaR models. Explain the significant difficulties in backtesting a VaR model. Verify a model based on exceptions or failure rates. Questions: 22.7.1. Mary the FRM conducts a backtest of her firm's...
  2. F

    Clarifying Understanding for Ch 4 - Backtesting VAR

    Hi, I have the following understanding - Does this make sense or am I missing something here? We may choose to accept a 99% VAR model with 95% or 99% (or any other) level of confidence. Hence, using Jorian's example from book, assuming we use a 99% VAR (i.e. p=.01), over 250 days (i.e. T=250)...
  3. Nicole Seaman

    P2.T5.713. Backtesting in the Basel rules (Jorion Ch.6)

    Learning objectives: Define and identify type I and type II errors. Explain the need to consider conditional coverage in the backtesting framework. Describe the Basel rules for backtesting. Questions: 713.1. In comparison to Basel III, which itself essentially incorporated the previous...
  4. M

    Jorion - Backtesting Questions

    Q1. How are they mathematically getting the values for k under the Basel penalty zone to go from 3 to 4 for a 250 day 99% CI when the number of exceptions goes from 5 to 10. Or is it something that has been set by Basel? Q2. There is an example in Jorion where they have found that when p =...
  5. A

    Backtesting Exceptions

    Hi David, Generally in 95% VaR, it is said that it can cause 5% exceptions say in 252 tests ~12.6 or 13. Normally we take 1.65 normal deviate and check it out. In the calculations in Jorion table 6.2 calculates this using the scheme to be less than 20. The number is actually 19.4. 1. why is...