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Stress Testing and Back-testing for UCITS [26]

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Bullet points include: Back-testing. A natural technique and an important tool for validating risk models, but not a panacea. Look-back bias still present even in out-of-sample back tests. Selection effects can systematically bias likely outcomes for actively managed portfolios. Stress testing. Complements back-testing. How much uncertainty there will be in the future is itself uncertain. If done well may help to identify mitigating strategies

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