Department of Economics and Business Economics

Wei Wei

The Geometric-VaR Backtesting Method

Research output: Working paper/Preprint Working paperResearch

  • Wei Wei
  • Denis Pelletier, North Carolina State University, United States
This paper develops a new test to evaluate Value af Risk (VaR) forecasts. VaR is a standard risk measure widely utilized by financial institutions and regulators, yet estimating VaR is a challenging problem, and popular VaR forecast relies on unrealistic assumptions. Hence, assessing the performance of VaR is of great importance. We propose the geometric-VaR test which utilizes the duration between the violations of VaR as well as the value of VaR. We conduct a Monte Carlo study based on desk-level data and we find that our test has high power against various alternatives.
Original languageEnglish
Number of pages28
Publication statusPublished - 2014

    Research areas

  • Risk management, Backtesting, Volatility, Duration, Value at risk

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