Financial Risk Specialist how-to

How to Backtest a Value-at-Risk Model

Backtesting keeps models honest.

Updated By the Career Education Institute Curriculum Team
Quick answer

Backtesting keeps models honest. In short: collect; collect; count, then complete the remaining steps below.

Step by step

  1. Collect daily VaR.

  2. Collect actual results.

  3. Count exceptions.

  4. Compare to expected.

  5. Investigate causes.

  6. Report findings.

Safety reminders for financial risk specialists

  • Protect confidential trading data
  • Follow regulatory rules
  • Escalate risks honestly
  • Keep models documented

VaR · Stress test · Market risk · Credit risk · Liquidity risk · Operational risk: see the full financial risk specialist glossary.

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