unconditionalT

Unconditional expected shortfall (ES) backtest by Acerbi-Szekely with critical values for t distributions

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Syntax

TestResults = unconditionalT(ebt)
TestResults = unconditionalT(ebt,Name,Value)

Description

example

TestResults = unconditionalT(ebt) runs the unconditional expected shortfall (ES) backtest by Acerbi-Szekely (2014) using precomputed critical values and assuming that the returns distribution is t with 3 degrees of freedom.

example

TestResults = unconditionalT(ebt,Name,Value) adds an optional name-value pair argument for TestLevel.

Examples

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Open Live Script

Create an esbacktest object. 

load ESBacktestData
ebt = esbacktest(Returns,VaRModel1,ESModel1,'VaRLevel',VaRLevel)
ebt = 
  esbacktest with properties:

    PortfolioData: [1966x1 double]
          VaRData: [1966x1 double]
           ESData: [1966x1 double]
      PortfolioID: "Portfolio"
            VaRID: "VaR"
         VaRLevel: 0.9750

Generate the TestResults report for the unconditional t ES backtest that assumes the returns distribution is t with 3 degrees of freedom.

TestResults = unconditionalT(ebt,'TestLevel',0.99)
TestResults=1×9 table
    PortfolioID    VaRID    VaRLevel    UnconditionalT     PValue     TestStatistic    CriticalValue    Observations    TestLevel
    ___________    _____    ________    ______________    ________    _____________    _____________    ____________    _________

    "Portfolio"    "VaR"     0.975          accept        0.018566      -0.38265         -0.42986           1966          0.99

Input Arguments

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esbacktest (ebt) object, which contains a copy of the given data (the PortfolioData, VarData, and ESData properties) and all combinations of portfolio ID, VaR ID, and VaR levels to be tested. For more information on creating an esbacktest object, see esbacktest.

Name-Value Pair Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside quotes. You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

Example: TestResults = unconditionalT(ebt,'TestLevel',0.99)

Test confidence level, specified as the comma-separated pair consisting of 'TestLevel' and a numeric value between 0.5 and 0.9999.

Data Types: double

Output Arguments

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Results, returned as a table where the rows correspond to all combinations of portfolio ID, VaR ID, and VaR levels to be tested. The columns correspond to the following information:

  • 'PortfolioID' — Portfolio ID for the given data.

  • 'VaRID' — VaR ID for each of the VaR data columns provided.

  • 'VaRLevel' — VaR level for the corresponding VaR data column.

  • 'UnconditionalT'— Categorical array with categories 'accept' and 'reject' indicating the result of the unconditional t test.

  • 'PValue'— P-value of the unconditional t test, interpolated from the precomputed critical values under the assumption that the returns follow a standard normal distribution.

    Note

    p-values < 0.0001 are truncated to the minimum (0.0001) and p-values > 0.5 are displayed as a maximum (0.5).

  • 'TestStatistic'— Unconditional t test statistic.

  • 'CriticalValue'— Precomputed critical value for the corresponding test level and number of observations. Critical values are obtained under the assumption that the returns follow a t distribution with 3 degrees of freedom.

  • 'Observations'— Number of observations.

  • 'TestLevel'— Test confidence level.

Note

For the test results, the terms 'accept' and 'reject' are used for convenience. Technically, a test does not accept a model; rather, a test fails to reject it.

More About

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Unconditional Test by Acerbi and Szekely

The unconditional test (also known as the second Acerbi-Szekely test) scales the losses by the corresponding ES value.

The unconditional test statistic is based on the unconditional relationship

ESt=−Et[XtItpVaR]

where

Xt is the portfolio outcome, that is, the portfolio return or portfolio profit and loss for period t.

PVaR is the probability of VaR failure defined as 1-VaR level.

ESt is the estimated expected shortfall for period t.

It is the VaR failure indicator on period t with a value of 1 if Xt < -VaR, and 0 otherwise.

The unconditional test statistic is defined as:

Zuncond=1NpVaR∑t=1NXtItESt+1

The critical values for the unconditional test statistic, which form the basis for table-based tests, are stable across a range of distributions. The esbacktest class runs the unconditional test against precomputed critical values under two distributional assumptions: normal distribution (thin tails) using unconditionalNormal and t distribution with 3 degrees of freedom (heavy tails) using unconditionalT.

References

[1] Acerbi, C., and B. Szekely. Backtesting Expected Shortfall. MSCI Inc. December, 2014.

See Also

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Topics

Introduced in R2017b

Risk Management Toolbox Documentation

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