Working Paper
Spectral Backtests of Forecast Distributions with Application to Risk Management
McNeil, Alexander J.; Gordy, Michael B. (2018-03-23)
We study a class of backtests for forecast distributions in which the test statistic is a spectral transformation that weights exceedance events by a function of the modeled probability level. The choice of the kernel function makes explicit the user's priorities for model performance. The class of spectral backtests includes tests of unconditional coverage and tests of conditional coverage. We show how the class embeds a wide variety of backtests in the existing literature, and propose novel variants as well. In an empirical application, we backtest forecast distributions for the overnight ...
Finance and Economics Discussion Series , Paper 2018-021

Working Paper
Spectral backtests unbounded and folded
Gordy, Michael B.; McNeil, Alexander J. (2024-08-02)
In the spectral backtesting framework of Gordy and McNeil (JBF, 2020) a probability measure on the unit interval is used to weight the quantiles of greatest interest in the validation of forecast models using probability-integral transform (PIT) data. We extend this framework to allow general Lebesgue-Stieltjes kernel measures with unbounded distribution functions, which brings powerful new tests based on truncated location-scale families into the spectral class. Moreover, by considering uniform distribution preserving transformations of PIT values the test framework is generalized to allow ...
Finance and Economics Discussion Series , Paper 2024-060

Working Paper
An Evaluation of Bank VaR Measures for Market Risk During and Before the Financial Crisis
Szerszen, Pawel J.; O'Brien, James M. (2014-03-07)
We study the performance and behavior of Value at Risk (VaR) measures used by a number of large banks during and before the financial crisis. Alternative benchmark VaR measures, including GARCH-based measures, are also estimated directly from the banks' trading revenues and help to explain the bank VaR performance results. While highly conservative in the pre-crisis period, bank VaR exceedances were excessive and clustered in the crisis period. All benchmark VaRs were more accurate in the pre-crisis period with GARCH VaR measures the most accurate in the crisis period having lower exceedance ...
Finance and Economics Discussion Series , Paper 2014-21