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Quantitative Finance · Glossary

What is Kupiec test, Christoffersen test?

Also known as: Kupiec test · Christoffersen test

Definition 21.15 Rates, Credit, XVA and Risk · Chapter 21 — Market-Risk Measures

The Kupiec test compares the number of exceptions xx in nn days with the expected pnpn by the likelihood ratio −2ln⁡[(1−p)n−xpx/((1−p^)n−xp^x)]-2\ln[(1-p)^{n-x}p^x/((1-\hat p)^{n-x}\hat p^x)], p^=x/n\hat p = x/n, chi-square with one degree of freedom. The Christoffersen test checks independence: it compares the probability of an exception after an exception with the probability after a quiet day.

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