Backtesting VaR and ES Under the Magnifying Glass

Backtesting provides the means of determining the accuracy of risk forecasts and

known, the evaluation methods rely on various assumptions in order to quantify the

assumptions, in conjunction with the regulatory policies can introduce distortions

investigate such effects from a practitioner's perspective, this paper reviews the ma-

their performance under a common simulation and financial application framework.

a more reliable alternative than the corresponding conditional coverage ones. In

power to relevance ratio than the more relevant but powerless regulatory one-year

specification.