Validates VaR model accuracy by comparing VaR estimates against actual realized losses. Performs Kupiec POF test, Christoffersen independence test, and Basel traffic light test. Essential for model validation, regulatory compliance, and ensuring risk models remain accurate over time.
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Historical actual portfolio returns
250[-0.02, 0.01, -0.015]Corresponding VaR estimates (positive values representing losses)
[0.025, 0.025, 0.025]Confidence level used for VaR estimates
0.99