The New International Regulation of Market Risk: Roles of VaR and CVaR in Model Validation

We model the new quantitative aspects of market risk management for banks that Basel established in 2016 and came into effect January 2019. Market is measured by Conditional Value at Risk (CVaR) or Expected Shortfall a confidence level 97.5%. The regulatory backtest remains largely based on 99% VaR. As additional statistical procedures, line with recommendations, supplementary VaR CVaR backtests must be performed different levels. apply these tests to various parametric distributions use non-parametric measures CVaR, including CVaR- CVaR+ supplement modelling validation. Our data relate period extreme turbulence. After testing eight data, we find information obtained their empirical performance closely tied backtesting conclusions regarding competing models.