| An important question for corporate finance officers is whether risk management systems, such as Value at Risk (VaR), currently are producing accurate results. In contrast to previous research on assessing the accuracy of VaR. I provide tools for real-time assessment, using a time window that varies adaptively with the data. Previous techniques have often backtested thousands of observations. I also discuss the trade-off between increasing detection power at the risk of detecting meaningless errors and suggest a parameter to specify the balance desired for a specific application. |
