Backtesting VaR and VaR Mapping

Free GARP FRM Part II lesson in Market Risk Measurement and Management. 21 min read, ~3,123 words.

Backtesting compares realized exceptions (breaches) to a VaR model's stated breach rate. Kupiec POF tests count; Christoffersen tests independence and conditional coverage. Type I error rejects a good model; Type II error accepts a bad model. Both depend on sample size, and small samples have low power. Basel traffic light...