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"This paper presents analytical, Monte Carlo, and empirical evidence on the effectiveness of combining recursive and rolling forecasts when linear predictive models are subject to structural change. We first provide a characterization of the bias-variance tradeoff faced when choosing between...
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Under the revised market risk framework of the Basel Committee on Banking Supervision, the model validation regime for internal models now requires that models capture the tail risk in profit-and-loss (P&L) distributions at the trading desk level. We develop multi-desk backtests, which...
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