Ziegel, Johanna F. ; Krueger, Fabian ; Jordan, Alexander ; Fasciati, Fernando
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Abstract
Motivated by the Basel 3 regulations, recent studies have considered joint forecasts of Value-at-Risk and Expected Shortfall. A large family of scoring functions can be used to evaluate forecast performance in this context. However, little intuitive or empirical guidance is currently available, which renders the choice of scoring function awkward in practice. We therefore develop graphical checks (Murphy diagrams) of whether one forecast method dominates another under a relevant class of scoring functions, and propose an associated hypothesis test. We illustrate these tools with simulation examples and an empirical analysis of S&P 500 and DAX returns.
Document type: | Working paper |
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Series Name: | Discussion Paper Series, University of Heidelberg, Department of Economics |
Volume: | 0632 |
Date Deposited: | 12 May 2017 12:39 |
Date: | 12 May 2017 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |