Supervisory Framework for the Use of "Backtesting" in Conjunction with the Internal Models Approach to Market Risk Capital Requirements¶
Basel Committee on Banking Supervision. (1996). Supervisory Framework for the Use of "Backtesting" in Conjunction with the Internal Models Approach to Market Risk Capital Requirements.
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Domain-specific¶
- Random Variable
- Under the Basel framework banks compute such figures daily and back-test them: over 250 trading days, roughly 2–3 breaches (1% of 250 ≈ 2.5) are expected, and materially more triggers regulatory scrutiny of the model
This sourceSets the back-test the sentence describes: 99% one-day VaR checked over roughly 250 trading days, about 2.5 exceptions expected, with the yellow zone -- an increased capital multiplier and supervisory follow-up -- beginning at the fifth exception and the red zone at the tenth.
SupportedVerified against the source
- Under the Basel framework banks compute such figures daily and back-test them: over 250 trading days, roughly 2–3 breaches (1% of 250 ≈ 2.5) are expected, and materially more triggers regulatory scrutiny of the model
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