The Risk Map: A New Tool for Validating Risk Models

By Perignon Christophe, Hurlin Christophe, and Colletaz Gilbert
Journal of Banking and Finance (2013)

  • Christophe Perignon

    HEC Paris


  • Christophe Hurlin

    University of Orléans


  • Gilbert Colletaz

    University of Orléans



September 27, 2013

Last update

June 20, 2016










The goal of this code is to automatically create a "Risk Map" from a series of Value-at-Risk (VaR) and profit and loss (P&L). Given the time series of VaR(α) and P&L, we generate the corresponding time series for VaR(α'), with α'<α through calibration. This is done by extracting the conditional variance of the P&L from VaR(α) and then plugging it into the formula for VaR(α'). A "super exception" is then defined as P&L < -VaR(α'). We formally test whether the sequence of exceptions and super exceptions satisfies standard backtesting conditions. Finally, the Risk Map graphically summarizes all information about the performance of the risk model.

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