Creating portfolio risk and return models [49]

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Bullet points include: Back testing Also benchmarking against other risk models (especially ‘industry standard’ and/or ‘market leading’ risk models) And comparison versus simple theoretical models E.g. Kupiec test for back-testing of market risk models Usually done for repeated ‘short’ periods of time More challenging is back testing over longer holding periods (and/or multiple different holding periods), as less data available And if back testing indicates weaknesses, then deciding what to do

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