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Murphy Diagrams: Forecast Evaluation of Expected Shortfall by Ziegel, Johanna F.; Krüger, Fabian; Jordan, Alexander; Fasciati, Fernando is a scholarly article available to read on EtoBox.

What is Murphy Diagrams: Forecast Evaluation of Expected Shortfall about?

Motivated by the Basel 3 regulations, recent studies have considered joint forecasts of Value-at-Risk and Expected Shortfall. A large family of scoring functions can be used to evaluate forecast performance in this context. However, little intuitive or empirical guidance is currently available, which renders the choice of scoring function awkward in practice. We therefore develop graphical checks (Murphy diagrams) of whether one forecast method dominates another under a relevant class of scoring functions, and propose an associated hypothesis test. We illustrate these tools with simulation examples and an empirical analysis of S&P 500 and DAX returns.

Author

Ziegel, Johanna F.; Krüger, Fabian; Jordan, Alexander; Fasciati, Fernando

Published

2017

Language

EN