Evaluation of Value-at-Risk and Expected Shortfall Measures in Market Risk Management
This paper has object to examine the empirical performance of market risk measurement in new Fundamental Review of the Trading Book (FRTB) regulation. Through an empirical study, we analyze the predictive performance of the Value-at-Risk (VaR) and Expected Shortfall (ES) models by using backtesting procedures for 2007-2012 periods (US subprime Mortgage Crisis and European Sovereign Debt). The applied methodology includes analyzes, synthesis and statistical/econometric methods. The empirical results show a clear outperformance of Expected Shortfall (ES) measures than Value-at-Risk (VaR) measures. Another important result is the backtesting procedure recommended by Fundamental Review of the Trading Book (FRTB) regulation penalizes the recommended market risk measurement.
