/vkkm:backtest

What problem does it solve?

This Skill automates the validation of Value at Risk (VaR) models, ensuring they meet regulatory standards and accurately reflect potential financial losses.

Core Features & Use Cases

• Kupiec Test Execution: Performs the Basel-mandated Proportion of Failures (POF) test to assess VaR model accuracy.
• Traffic Light Classification: Classifies model performance into Green, Yellow, or Red zones based on exception rates.
• Exception Clustering Analysis: Identifies patterns of consecutive VaR breaches, indicating potential volatility clustering issues.
• Use Case: A risk manager needs to submit their firm's VaR model for regulatory review. This Skill can quickly assess the model's historical performance against actual P&L data, providing a clear pass/fail verdict and actionable insights.

Quick Start

Validate my 99% 1-day VaR model which estimated €50,000 daily VaR, given 250 trading days with 8 exceptions.