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Backtesting expected shortfall: accounting for tail risk

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dc.affiliation.dptoUC3M. Departamento de Economíaes
dc.contributor.authorEscanciano, Juan Carlos
dc.contributor.authorDu, Zaichao
dc.contributor.funderMinisterio de Economía y Competitividad (España)es
dc.date.accessioned2022-06-13T17:58:13Z
dc.date.available2022-06-13T17:58:13Z
dc.date.issued2016-03-10
dc.description.abstractThe Basel Committee on Banking Supervision (BIS) has recently sanctionedexpected shortfall (ES) as the market risk measure to be used for banking regulatorypurposes, replacing the well-known value at risk (VaR). This change is motivated by theappealing theoretical properties of ES as a measure of risk and the poor properties ofVaR. In particular, VaR fails to control for “tail risk.” In this transition, the major challengefaced by financial institutions is the unavailability of simple tools for evaluation of ESforecasts (i.e., backtesting ES). The main purpose of this paper is to propose such tools.Specifically, we propose backtests for ES based on cumulative violations, which are thenatural analogue of the commonly used backtests for VaR. We establish the asymptoticproperties of the tests, and investigate their finite sample performance through someMonte Carlo simulations. An empirical application to three major stock indexes showsthat VaR is generally unresponsive to extreme events such as those experienced duringthe recent financial crisis, whereas ES provides a more accurate description of the riskinvolved.en
dc.description.sponsorshipResearch funded by the National Natural Science Foundation of China [Grant 71401140] andthe Spanish Plan Nacional de I+D+I [Reference ECO2014-55858-P]en
dc.identifier.bibliographicCitationDu, Z., & Escanciano, J. C. (2017). Backtesting Expected Shortfall: Accounting for Tail Risk. Management Science, 63 (4), pp. 940-958.es
dc.identifier.doihttps://doi.org/10.1287/mnsc.2015.2342
dc.identifier.issn0025-1909
dc.identifier.publicationfirstpage940es
dc.identifier.publicationissue4es
dc.identifier.publicationlastpage958es
dc.identifier.publicationtitleMANAGEMENT SCIENCEes
dc.identifier.publicationvolume63es
dc.identifier.urihttps://hdl.handle.net/10016/35101
dc.identifier.uxxiAR/0000029586
dc.language.isoenges
dc.publisherINFORMSen
dc.relation.projectIDGobierno de España. ECO2014-55858-Pes
dc.rights© 2016, INFORMSes
dc.rights.accessRightsopen accessen
dc.subject.ecienciaEconomíaes
dc.subject.otherRisk managementen
dc.subject.otherExpected shortfallen
dc.subject.otherBacktestingen
dc.subject.otherTail risken
dc.subject.otherValue at risken
dc.titleBacktesting expected shortfall: accounting for tail risken
dc.typeresearch article*
dc.type.hasVersionAM*
dspace.entity.typePublication
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