Ch 14 - Risk management and VaR backtesting Flashcards
1
Q
What is one way of evaluating the accuracy of VaR forecasts?
A
Computing the Hit variable
2
Q
If the VaR forecast is optimal, then the sequence of hits will follow a ________ distribution
A
Bernoulli
3
Q
What 2 forms is the Hit variable test defined in?
A
Unconditional coverage test
Conditional coverage test
4
Q
What is unconditional coverage?
A
If alpha % VaR forecast is correct, then approximately alpha % of observations should have exceeded the VaR
5
Q
What can we use to compare VaR forecasts?
A
Diebold Mariano tests
6
Q
The Christofferson First order Markov chain allows for ______ in the hits
A
Serial correlation
