A New Set of Improved Value-at-Risk Backtests

40 Pages Posted: 26 Aug 2013 Last revised: 8 Jul 2014

See all articles by Daniel Ziggel

Daniel Ziggel

Ruhr University of Bochum

Tobias Berens

University TU Dortmund; zeb/rolfes.schierenbeck.associates

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science

Dominik Wied

University of Cologne

Date Written: July 8, 2014

Abstract

We propose a new set of formal backtests for VaR-forecasts that significantly improve upon existing backtesting procedures. Our new test of unconditional coverage can be used for both one-sided and two-sided testing, which leads to a significantly increased power. Second, we stress the importance of testing the property of independent and identically distributed (i.i.d.) VaR-exceedances and propose a simple approach that explicitly tests for the presence of clusters in VaR-violation processes. Results from a simulation study indicate that our tests significantly outperform competing backtests in several distinct settings.

Keywords: Value-at-Risk, backtesting, Monte Carlo simulation

JEL Classification: C52, C53, C58

Suggested Citation

Ziggel, Daniel and Berens, Tobias and Berens, Tobias and Weiss, Gregor N. F. and Wied, Dominik, A New Set of Improved Value-at-Risk Backtests (July 8, 2014). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2316134 or http://dx.doi.org/10.2139/ssrn.2316134

Daniel Ziggel

Ruhr University of Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Tobias Berens

University TU Dortmund ( email )

Emil-Figge-Straße 50
Dortmund, 44227
Germany

zeb/rolfes.schierenbeck.associates ( email )

Hammer Straße 165
Münster, 48149
Germany

Gregor N. F. Weiss (Contact Author)

University of Leipzig - Faculty of Economics and Management Science ( email )

Grimmaische Str. 12
Leipzig, 04109
Germany
+49 341 97 33821 (Phone)
+49 341 97 33829 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/nfdl

Dominik Wied

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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