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5 - Evaluation of Value-at-Risk Models: An Empirical Likelihood Approach

Published online by Cambridge University Press:  02 March 2023

By
David Lynch ,
Valerio Potì ,
Akhtar Siddique  and
Francesco Campobasso
Edited by
David Lynch ,
Iftekhar Hasan  and
Akhtar Siddique
David Lynch
Affiliation:
Federal Reserve Board of Governors
Iftekhar Hasan
Affiliation:
Fordham University Graduate Schools of Business
Akhtar Siddique
Affiliation:
Office of the Comptroller of the Currency
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Summary

This chapter provides an alternative to exceedance or density-based evaluation of VaR models. This alternative is based on empirical likelihood. We also outline a method to infer the risk exposure, by assessing whether some measure of interval forecast error (e.g., distance between the empirical distribution of the PITs and the posited uniform distribution) is related to some measure of risk exposure, such as the volatility of given risk factors.

Keywords

Empirical likelihood
Type
Chapter
Information
Validation of Risk Management Models for Financial Institutions
Theory and Practice
 , pp. 84 - 103
Publisher: Cambridge University Press
Print publication year: 2023

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References

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