Title: Backtesting marginal expected shortfall and related systemic risk measures
Authors: Jeremy Leymarie - LEO - CNRS - University of Orleans (France) [presenting]
Denisa Georgiana Banulescu - University of Orleans (France)
Christophe Hurlin - University of Orleans (France)
Olivier Scaillet - University of Geneva and Swiss Finance Institute (Switzerland)
Abstract: Two backtesting tests are proposed to assess the validity of the systemic risk measure forecasts. This new tool meets the need of financial regulators of evaluating the quality of systemic risk measures generally used to identify the financial institutions contributing the most to the total risk of the financial system (SIFIs). The tests are based on the concept of cumulative violations and it is built up in analogy with the recent backtesting procedure proposed for ES (Expected Shortfall). First, we introduce two backtests that apply for the case of the MES (Marginal Expected Shortfall) forecasts. The backtesting methodology is then generalised to MES-based systemic risk measures (SES, SRISK) and to the Delta CoVaR. Second, we study the asymptotic properties of the tests in presence of estimation risk and we investigate their finite sample performances via Monte Carlo simulations. Finally, we use our backtests to asses the validity of the MES, SRISK and Delta CoVaR forecasts on a panel of EU financial institutions.