Back testing Expected Shortfall
Hi Pit and thanks for sharing. I was not aware of the Gneiting paper, but the Gneiting and Raftery (2007) paper discusses scoring rules and their mean interval score (MIS) has been used in the M4 competition (implemented in the greybox package). Best, Alexios
On 6/15/20 7:34 AM, Pit G?tz wrote:
Hello everyone, I work at a university in germany and we are also currently working on forecasting ES and (of course) backtesting of said forecasts. Over the last few months some students, who are writing their masters thesis at our chair, had to some litarature research. Thats why I wanted to give you a very brief overview of their findings: The most widely applied ES backtests seems to be the backtest by McNeil, Frey and Embrechts (2000), implemented for example in the rugarch package. (the test was already mentioned here by Alexios) In addition to the already mentioned tests and the paper by Acerby and Szekely I wanted to add the following: A Hitsequence based backtest was introduced for by Du, Escanciano (2017). As far as I am concerned, this test has not yet been implemented in a package, but their code is available online. In a broader view, this test is a special case of a spectral measure test by Costanzino, Curran (2014), which was then extended to a Basel-Like traffic light approach in 2018 (Not sure about the availability of code). In Emmer et al. (2015) it is suggested, that a suitable ES forecast can be approximated by only 4 different VaR forecasts. This also suggests, that you can backtest ES, forecasted by a model that forecasts both, ES and VaR, such as GARCH, by backtesting th 4 different VaR forecasts. However this approach seems to need more empirical valuation. I also wanted to mention the paper by Gneiting (2011), showing that the ES lacks elicitability property. This can lead to complications, when you try to backtest the ES itself as a point forecast.However, this property can be used to construct a model comparison like backtest as in Fissler et al. (2015). More reacently, a quantile regression based approach has been suggested by Coupier, Leymarie (2020). I have not yet read said paper and therefore I can not tell you anything about it. I hope that this message gives you some new insights and some usefull information. Best regards, Pit Research Associate *Martin-Luther-Universit?t Halle-Wittenberg* Chair of Finance & Banking Gro?e Steinstra?e 73 | D-06108 Halle | Germany Tel 0049?345 5523452
Daniel?Cegie?ka?<daniel.cegielka at gmail.com> 10.06.20 21.49 Uhr >>>
?r., 10 cze 2020 o 21:14 alexios galanos <alexios at 4dscape.com> napisa?(a):
> > > > On 6/10/20 11:08 AM, Daniel Cegie?ka wrote:
> > ?r., 10 cze 2020 o 19:23 Brian G. Peterson <brian at braverock.com>
napisa?(a):
> >> > >> On Wed, 2020-06-10 at 15:08 +0530, Christofer Bogaso wrote:
> >>> I was looking for an idea how banks backtest their models for > >>> Expected > >>> Shortfall. Backtesting VaR is well documented but I failed to get any > >>> practical idea about backtesting ES. > >>> > >>> Any pointer towards the best practice will be really helpful.
> >> > >> If you are using Normal VaR, then you know the Expected Shortfall > >> estimate too. > >> > >> If you are using a different mechanism, then of course the mean loss > >> when the loss exceeds the VaR may be significantly different than the > >> Normal ES. > >> > >> So, to backetesting... the newest Basel standard replaces VaR with ES, > >> and requires that banks justify their use of a particular ES model
that
> >> they are using to calculate required regulatory capital.
> > > > In my opinion, there is one aspect that introduces some confusion. ES > > (CVaR) is now common, but many people, perhaps out of habit, maybe for > > historical reasons, still use the term VaR instead of the correct name > > (ES).
> > Not sure I follow. VaR and ES are different measures. VaR is a > quantile while ES is the average loss conditional on that quantile > (i.e. the expected loss conditional that the loss is greater than > the quantile of the loss distribution).
I agree that these names should not be confused. However, I encountered that the _name_ "VaR" is used for ES. In my opinion, this is due to a mental shortcut, or it's a historical habit. Such imprecise use of the names often leads to misunderstanding. Daniel
> Regards, > > Alexios >
> > > > Best regards, > > Daniel > > > >
> >> Regards, > >> > >> Brian > >> > >> > >> -- > >> Brian G. Peterson > >> ph: +1.773.459.4973 > >> im: bgpbraverock > >> > >> _______________________________________________ > >> R-SIG-Finance at r-project.org mailing list > >> https://stat.ethz.ch/mailman/listinfo/r-sig-finance > >> -- Subscriber-posting only. If you want to post, subscribe first. > >> -- Also note that this is not the r-help list where general R
questions should go.
> > > > _______________________________________________ > > R-SIG-Finance at r-project.org mailing list > > https://stat.ethz.ch/mailman/listinfo/r-sig-finance > > -- Subscriber-posting only. If you want to post, subscribe first. > > -- Also note that this is not the r-help list where general R
questions should go.
> >
_______________________________________________ R-SIG-Finance at r-project.org mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.