BinomialBacktest: Carries out the binomial backtest for a VaR risk measurement...

In Dowd: Functions Ported from 'MMR2' Toolbox Offered in Kevin Dowd's Book Measuring Market Risk

Description

The basic idea behind binomial backtest (also called basic frequency test) is to test whether the observed frequency of losses that exceed VaR is consistent with the frequency of tail losses predicted by the mode. Binomial Backtest carries out the binomial backtest for a VaR risk measurement model for specified VaR confidence level and for a one-sided alternative hypothesis (H1).

Usage

BinomialBacktest(x, n, cl)

Arguments

x	Number of failures
n	Number of observations
cl	Confidence level for VaR

Value

Probability that the VaR model is correct

Author(s)

Dinesh Acharya

References

Dowd, Kevin. Measuring Market Risk, Wiley, 2007.

Kupiec, Paul. Techniques for verifying the accuracy of risk measurement models, Journal of Derivatives, Winter 1995, p. 79.

Examples

# Probability that the VaR model is correct for 3 failures, 100 number
   # observations and  95% confidence level
   BinomialBacktest(55, 1000, 0.95)

Example output

Loading required package: bootstrap
Loading required package: MASS
Loading required package: forecast
[1] 0.2528819

Dowd documentation built on May 2, 2019, 6:15 p.m.