Speaker: Ruodu Wang

Abstract: In the recent Basel Accords, the Expected Shortfall (ES) replaces the Value-at-Risk (VaR) as the standard risk measure for market risk in the banking sector, making it the most important risk measure in financial regulation. One of the most challenging tasks in risk modeling practice is to backtest ES forecasts provided by financial institutions. Ideally, backtesting should be done based only on daily realized portfolio losses without imposing specific models. We discuss how to use e-values and e-processes to backtest risk forecasts of VaR and ES, which can be naturally generalized to many other risk measures and statistical quantities. https://arxiv.org/abs/2209.00991