Creating portfolio risk and return models [57]

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Bullet points include: Enhanced risk measurement seen as a ‘good thing’ Back-testing provides a ‘cheap’ way of testing the quality of models without having to wait for the future to arrive Hence importance placed on back-testing by regulators in relation to internal models  E.g. Solvency II, Basel II, ... Even ‘standardised’ capital calculations typically involve back-testing (by the regulator)

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