Stress Testing And Backtesting

Stress Testing and Back Testing [19]

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Bullet points include: Hit (‘violation’) sequence, It(k) = 1 if outcome at time t is beyond quantile point k, = 0 otherwise. Seeking acceptable unconditional coverage. I.e. actual probability (averaged through time) matches expected probability. Test using, say, Kupiec’s test statistic or a z-statistic, comparing observed versus expected number of hits, reject model fit if deviate too large

Bullet points include: Hit (‘violation’) sequence, It(k) = 1 if outcome at time t is beyond quantile point k, = 0 otherwise. Seeking acceptable unconditional coverage. I.e. actual probability (averaged through time) matches expected probability. Test using, say, Kupiec’s test statistic or a z-statistic, comparing observed versus expected number of hits, reject model fit if deviate too large

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