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Edited by
David Lynch, Federal Reserve Board of Governors,Iftekhar Hasan, Fordham University Graduate Schools of Business,Akhtar Siddique, Office of the Comptroller of the Currency
This chapter assesses the accuracy and possible misspecification of VaR models and offers a comparison of backtesting results using PITs over exceedances for the same sample of real portfolios. It investigates results from a set of tests used to assess unconditional coverage, conditional coverage, and independence properties of the realized VaR exceptions. This also presents a comprehensive overview of tests used to assess the uniformity and independence properties of a series of PIT estimates generated from real-world risk models. The analysis includes tests based on the empirical CDF (e.g., Kolmogorov–Smirnov; Cramér–Von Mises; and Anderson–Darling) as well as tests of dependence based on regression analysis of observed PITs.
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