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A Simple Traffic Light Approach to Backtesting Expected Shortfall

1
Barclays Capital, 745 7th Ave, New York, NY 10019, USA
2
Department of Finance and Risk Engineering, NYU Tandon School of Engineering, New York, NY 11201, USA
3
Riskcare, New York, NY 10018, USA
*
Authors to whom correspondence should be addressed.
Received: 11 September 2017 / Revised: 3 January 2018 / Accepted: 4 January 2018 / Published: 9 January 2018
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Abstract

We propose a Traffic Light approach to backtesting Expected Shortfall which is completely consistent with, and analogous to, the Traffic Light approach to backtesting VaR (Value at Risk) initially proposed by the Basel Committee on Banking Supervision in their 1996 consultative document Basle Committee on Banking Supervision (1996). The approach relies on the generalized coverage test for Expected Shortfall developed in Costanzino and Curran (2015). View Full-Text
Keywords: Expected Shortfall; backtesting; Fundamental Review of the Trading Book Expected Shortfall; backtesting; Fundamental Review of the Trading Book
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Costanzino, N.; Curran, M. A Simple Traffic Light Approach to Backtesting Expected Shortfall. Risks 2018, 6, 2.

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