Some Results on Foreign Equity Portfolio Risk Backtesting via Lévy Ordinary Copula Model
Kresta Aleš, Tichý Tomáš
backtesting, market risk, model validation, subordinated Lévy model, ordinary elliptical copula
The soundness of risk monitoring and measuring systems is a key point for the reliability of
financial institutions. One of the features of a reliable risk model is that it passes a backtesting
procedure – a comparison of the one step ahead risk estimation and a true loss occurred on a
given day – without any troubles. Within this paper, basic tests to backtesting procedure due to
Kupiec, Christoffersen and Haas are applied on a portfolio sensitive to equity and FX rate risk.
In particular details, we focus on NIG model and its variants due to various time spans used
for parameter estimation. We document a significant improvement of such tail risk models on
several portfolio positions.
Some Results on Foreign Equity Portfolio Risk Backtesting via Lévy Ordinary Copula Model [PDF file] [Filesize: 857.76 KB]
Kresta, A., Tichý, T.(2012). Some Results on Foreign Equity Portfolio Risk
Backtesting via Lévy Ordinary Copula Model. Journal of Competitiveness, 4 (2), 85-96. https://doi.org/10.7441/joc.2012.02.06