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...

An intersection–union test for supporting the hypothesis that a given investment strategy is optimal among a set of alternatives is presented. It compares the Sharpe ratio of the benchmark with that of each other strategy. The intersection–union test takes serial dependence into account and...

Despite the widespread use of chain-ladder models, so far no theory was available to test for model specification. The popular over-dispersed Poisson model assumes that the over-dispersion is common across the data. A further assumption is that accident year effects do not vary across...

We present a statistical test for the long-term calibration in rating systems that can deal with overlapping time windows as required by the guidelines of the European Banking Authority (EBA), which apply to major financial institutions in the European System. In accordance with regulation,...

Quantitative investment strategies are often selected from a broad class of candidate models estimated and tested on historical data. Standard statistical techniques to prevent model overfitting such as out-sample backtesting turn out to be unreliable in situations when the selection is based on...

An asymptotic hypothesis test for value-at-risk subadditivity is introduced and studied. The test is derived based on an equivalent formulation of the value-at-risk subadditivity inequality in terms of the distribution of the underlying risks' sum. Its size is considered mathematically, and its...

To address a key issue in functional time series analysis on testing the randomness of an observed series, we propose an IID test for functional time series by generalizing the Brock-Dechert-Scheinkman (BDS) test, which is commonly used for testing nonlinear independence. Similarly to the BDS...

We analyse four stochastic claims reserving methods in terms of their capability to estimate reserve risk and how successful they are at predicting distributions and VaRs of claim developments in particular. Both actual data and hypothetical claim triangles support our results. The...

This study quantifies the air quality impact on population mortality from an actuarial perspective, considering implications to the industry through the application of findings. The study focuses on the increase in mortality from air quality changes due to extreme weather impacts. We conduct an...

While previous academic research highlights the potential of machine learning and big data for predicting corporate bond recovery rates, the operations management challenge is to identify the relevant predictive variables and the appropriate model. In this paper, we use meta-learning to combine...