[R-SIG-Finance] Back testing Expected Shortfall
Daniel Cegiełka
d@n|e|@ceg|e|k@ @end|ng |rom gm@||@com
Wed Jun 10 21:48:25 CEST 2020
śr., 10 cze 2020 o 21:14 alexios galanos <alexios using 4dscape.com> napisał(a):
>
>
>
> 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).
I agree that these names should not be confused. However, I
encountered that the _name_ "VaR" is used for ES. In my opinion, this
is due to a mental shortcut, or it's a historical habit. Such
imprecise use of the names often leads to misunderstanding.
Daniel
> Regards,
>
> Alexios
>
> >
> > Best regards,
> > Daniel
> >
> >
> >> Regards,
> >>
> >> Brian
> >>
> >>
> >> --
> >> Brian G. Peterson
> >> ph: +1.773.459.4973
> >> im: bgpbraverock
> >>
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> >
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> >
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