In this paper we propose a new methodology to enhance the discriminatory power of backtesting for counterparty credit risk (CCR) by effectively removing strong autocorrelation in overlapping data. It is assessed by the benchmark result of non-overlapping backtesting data with the same number of...

The paper includes our recent findings on the backtesting for the EPE model to obtain the internal-model method approval. The challenge on the EPE backtesting is to obtain the statistical appealing threshold for overlapping horizons. We obtain the empirical thresholds using the random number...

In this article we introduce a new framework for counterparty risk model backtesting based on Bayesian methods. This provides a conceptually sound approach for analyzing model performance which is also straightforward to implement. We show that our methodology provides important advantages over...