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Stress Testing and Back-testing for UCITS [2]

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Bullet points include: Back-testing. Techniques and issues, including look-back bias. ‘Selection’ effects – biases that can arise when portfolios are built to discriminate between ‘meaning’ and ‘noise’ (e.g. if they are actively managed). What should we do when risk models include market implied components? Stress Testing. Different interpretations of the term ‘stress testing’ and the need for ‘plausibility’ Reverse stress testing. See also: Kemp, M.H.D. (2009). Market Consistency: Model Calibration in Imperfect Markets. John Wiley & Sons Ltd

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