Abstract
I discuss the incentive compatibility of comparative and calibration backtesting for banking regulation. In stylized models of risk reporting, calibration backtesting leads to uninformed risk reports that adapt insufficiently to volatility changes. In contrast, comparative backtesting incentivizes information for richer and more accurate models.
Citation
Patrick Schmidt. "Discussion of “Elicitability and backtesting: Perspectives for banking regulation”." Ann. Appl. Stat. 11 (4) 1883 - 1885, December 2017. https://doi.org/10.1214/17-AOAS1041B
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