[R-SIG-Finance] Back testing Expected Shortfall

[Brian G. Peterson]

On Wed, 2020-06-10 at 20:08 +0200, Daniel Cegiełka wrote:
> śr., 10 cze 2020 o 19:23 Brian G. Peterson <
> brian using braverock.com
> > napisał(a):
> > So, to backtesting...  the newest Basel standard replaces VaR with
> > ES,
> > and requires that banks justify their use of a particular ES model
> > that
> > they are using to calculate required regulatory capital.
> 
> In my opinion, there is one aspect that introduces some confusion. ES
> (CVaR) is now common, but many people, perhaps out of habit, maybe
> for
> historical reasons, still use the term VaR instead of the correct
> name
> (ES).

VaR and ES (CVaR, ETL) are mathematically related to each other, since
ES is the mean loss when the loss exceeds the VaR quantile.

Confusingly, one of the permissible tests of a bank's ES model under
Basel is the 'VaR test' which measures the number of VaR exceeding
events, and the degree of the loss eceeding VaR to evaluate whether the
*ES* model is likely valid.  This test has been widely criticized, and
should likely be avoided as anything other than a quick check of
possible suitability.

Regards,

Brian