We present new evidence on disaggregated profit and loss and VaR forecasts obtained from a large international commercial bank. Our dataset includes daily P/L generated by four separate business lines within the bank. All four business lines are involved in securities trading and each is...

We present new evidence on disaggregated profit and loss (P/L) and Value-at-Risk (VaR) forecasts obtained from a large international commercial bank. Our dataset includes daily P/L generated by four separate business lines within the bank. All four business lines are involved in securities...

Financial risk model evaluation or backtesting is a key part of the internal model's approach to market risk management as laid out by the Basle Commitee on Banking Supervision (1996).However, existing backtesting methods such as those developed in Christoffersen (1998), have relatively small...

Financial risk model evaluation or backtesting is a key part of the internal model`s approach to market risk management as laid out by the Basle Committee on Banking Supervision. However, existing backtesting methods have relatively low power in realistic small sample settings. Our contribution...

We present a general framework for testing the accuracy of Value-at-Risk (VaR) forecasts. The approach is based on the observation that violations – the days on which portfolio losses exceed the VaR – should be unpredictable. Specifically, these violations form a martingale difference...

In this study, we develop a new approach to investigate spatial market integration. In particular, it is a Markov-Switching autoregressive (MSAR) model with time-varying state transition probabilities. Studying market integration is an effective way to test whether the law of one price holds...

This paper develops a life-cycle portfolio allocation model to address the effects of housing investment on the portfolio allocation of households. The model employs a comprehensive housing investment structure, Epstein-Zin recursive preferences and a stock market entry cost. Furthermore, rather...