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Backtesting trading risk of commercial banks using expected shortfall

Wong, Woon K.

Authors

Woon K. Wong



Abstract

This paper uses saddlepoint technique to backtest the trading risk of commercial banks using expected shortfall. It is found that four out of six US commercial banks have excessive trading risks. Monte Carlo simulation studies show that the proposed backtest is very accurate and powerful even for small test samples. More importantly, risk managers can carry out the proposed backtest based on any number of exceptions, so that incorrect risk models can be promptly detected before any further huge losses are realized. © 2007 Elsevier B.V. All rights reserved.

Citation

Wong, W. K. (2008). Backtesting trading risk of commercial banks using expected shortfall. Journal of Banking and Finance, 32(7), 1404-1415. https://doi.org/10.1016/j.jbankfin.2007.11.012

Journal Article Type Article
Publication Date Jul 1, 2008
Journal Journal of Banking and Finance
Print ISSN 0378-4266
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 32
Issue 7
Pages 1404-1415
DOI https://doi.org/10.1016/j.jbankfin.2007.11.012
Keywords value-at-risk, expected shortfall, backtesting, saddlepoint technique
Public URL https://uwe-repository.worktribe.com/output/1011561
Publisher URL http://dx.doi.org/10.1016/j.jbankfin.2007.11.012




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