[R-SIG-Finance] Back testing Expected Shortfall

[alexios galanos]

On 6/10/20 11:08 AM, Daniel Cegiełka wrote:
> śr., 10 cze 2020 o 19:23 Brian G. Peterson <brian using braverock.com> napisał(a):
>>
>> On Wed, 2020-06-10 at 15:08 +0530, Christofer Bogaso wrote:
>>> I was looking for an idea how banks backtest their models for
>>> Expected
>>> Shortfall. Backtesting VaR is well documented but I failed to get any
>>> practical idea about backtesting ES.
>>>
>>> Any pointer towards the best practice will be really helpful.
>>
>> If you are using Normal VaR, then you know the Expected Shortfall
>> estimate too.
>>
>> If you are using a different mechanism, then of course the mean loss
>> when the loss exceeds the VaR may be significantly different than the
>> Normal ES.
>>
>> So, to backetesting...  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).

Not sure I follow. VaR and ES are different measures. VaR is a
quantile while ES is the average loss conditional on that quantile
(i.e. the expected loss conditional that the loss is greater than
the quantile of the loss distribution).

Regards,

Alexios

> 
> Best regards,
> Daniel
> 
> 
>> Regards,
>>
>> Brian
>>
>>
>> --
>> Brian G. Peterson
>> ph: +1.773.459.4973
>> im: bgpbraverock
>>
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