Evaluating the accuracy of value-at-risk forecasts: New multilevel tests |
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| Authors: | Arturo Leccadito Simona Boffelli Giovanni Urga |
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| Institution: | 1. Department of Economics, Statistics and Finance, Università della Calabria, Italy;2. Department of Management, Economics and Quantitative Methods, Università di Bergamo, Italy;3. Faculty of Finance, Cass Business School, City University London, UK |
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| Abstract: | We propose independence and conditional coverage tests which are aimed at evaluating the accuracy of Value-at-Risk (VaR) forecasts from the same model at different confidence levels. The proposed procedures are multilevel tests, i.e., joint tests of several quantiles corresponding to different confidence levels. In a comprehensive Monte Carlo exercise, we document the superiority of the proposed tests with respect to existing multilevel tests. In an empirical application, we illustrate the implementation of the tests using several VaR models and daily data for 15 MSCI world indices. |
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| Keywords: | Risk management Value-at-risk Backtesting Conditional and unconditional coverage tests Monte Carlo |
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