Assessing backtesting tools for Value-at-Risk and expected shortfall

• Grant number: 24/06269-6
• Support Opportunities: Scholarships in Brazil - Scientific Initiation
• Start date: June 01, 2024
• End date: May 31, 2025
• Field of knowledge: Physical Sciences and Mathematics - Probability and Statistics - Statistics
• Principal Investigator: Luiz Koodi Hotta
• Grantee: Mateus Lee Yu
• Host Institution: Instituto de Matemática, Estatística e Computação Científica (IMECC). Universidade Estadual de Campinas (UNICAMP). Campinas , SP, Brazil
• Associated research grant: 23/02538-0 - Time series, wavelets, high dimensional data and applications, AP.TEM

Abstract

In the financial econometrics literature, it is common to use backtesting tools to evaluate the adequacy of risk measures such as Value-at-Risk and Expected Shorfall. This is done through hypothesis testing which, in some situations, can lead to opposite conclusions depending on the test used. The objective of this project is to evaluate, through Monte Carlo simulations, the power of the tests most used in the literature.