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6 - Evaluating Banks’ Value-at-Risk Models during the COVID-19 Crisis

Published online by Cambridge University Press:  02 March 2023

David Lynch
Affiliation:
Federal Reserve Board of Governors
Iftekhar Hasan
Affiliation:
Fordham University Graduate Schools of Business
Akhtar Siddique
Affiliation:
Office of the Comptroller of the Currency
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Summary

This chapter examines how banks’ Value-at-Risk (VaR) models performed during the COVID-19 crisis using regulatory trading desk-level data. It first evaluates whether banks’ VaR models were incomplete by checking whether various factors predict backtesting exceptions. Backtesting exceptions from the past ten business days and the level of the VIX forecast future exceptions. Predictability from past backtesting exceptions rises during the COVID-19 crisis relative to 2019. The results do not find any single market factor that related to contemporaneous backtesting exceptions. These results hold both in the aggregate and across asset classes.

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Chapter
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Publisher: Cambridge University Press
Print publication year: 2023

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References

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