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Backtesting Risk Models: 2014 Year in Review

This 2014 Year in Review reports the results of one-year backtests using four types of simulation models available in RiskManager:

  • Monte Carlo
  • Historical
  • Filtered historical
  • Weighted historical

The models were tested on 10 indexes, representing different segments of US and global equity and bond markets. Along with Value at Risk (VaR), we have extended the 2014 Year in Review to include a formal backtest of Expected Shortfall (ES), based on a framework recentlydeveloped by MSCI, and have applied a new scoring function that ranks the four different models in terms of relative predictive performance, index by index; we refer to this new technique as the MSCI Model Scorecard.