Enterprise Risk Management Slides

Measuring and managing market, credit and Op risk [35]

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$Bullet points include: It is important to be able to evaluate the performance of risk models ex post Not always as simple as it sounds system-wise, e.g. need to keep copies of past risk system parameterisations, and how securities map to relevant factors etc. Assess their performance by seeing how many ‘exceptions’ occur An ‘exception’ is a loss that exceeds the VaR supplied by the model Intuitively, losses should exceed a VaR with a confidence of alpha, approximately a fraction alpha of the time (unconditional coverage) Also desirable is that exceptions should not unduly clump together through time (independence)$

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