Backtesting VaR and VaR Mapping
Free GARP FRM Part II lesson in Market Risk Measurement and Management. 20 min read, ~3,034 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, small samples have low power. Basel traffic light: green...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
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