Validating Bank VaR Models — Beyond Backtesting
Free GARP FRM Part II lesson in Market Risk Measurement and Management. 19 min read, ~2,865 words.
Conceptual soundness review asks whether the model's design assumptions match the portfolio's economics, independent of historical performance. Sensitivity analysis stresses the inputs (vol, correlation, distribution choice) and watches the output. Stable models are credible; flip-flopping models aren't. Confidence intervals on VaR require accounting for parameter estimation error, model uncertainty, and...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
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