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| Format: | Preprint |
| Published: |
2026
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| Online Access: | https://arxiv.org/abs/2603.17792 |
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| _version_ | 1866910058027155456 |
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| author | Manuge, D. J. |
| author_facet | Manuge, D. J. |
| contents | The purpose of this paper is to describe and extend the use of the newly-introduced measure, residual estimation risk. Following the seminal work of Bignozzi and Tsanakas, the quantification of residual estimation risk is proposed in a multivariate framework. Our aim is to provide a succinct and practical introduction to the concept, to motivate its use as a back-testing measure, and to provide examples related to credit risk parameter estimation. In section 2, we introduce residual estimation risk defined by various risk measures, and illustrate the calculation using R and SAS. In section 3, we propose a back-testing criterion for the measure, which can be altered to assess model performance for both accuracy and conservatism. In section 4, we conduct back-testing on risk parameter estimates of retail credit portfolios, including multiple back-testing measures for comparison. Finally, we conclude our findings and propose areas for future work in section 5. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_17792 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Multivariate Residual Estimation Risk Manuge, D. J. Risk Management The purpose of this paper is to describe and extend the use of the newly-introduced measure, residual estimation risk. Following the seminal work of Bignozzi and Tsanakas, the quantification of residual estimation risk is proposed in a multivariate framework. Our aim is to provide a succinct and practical introduction to the concept, to motivate its use as a back-testing measure, and to provide examples related to credit risk parameter estimation. In section 2, we introduce residual estimation risk defined by various risk measures, and illustrate the calculation using R and SAS. In section 3, we propose a back-testing criterion for the measure, which can be altered to assess model performance for both accuracy and conservatism. In section 4, we conduct back-testing on risk parameter estimates of retail credit portfolios, including multiple back-testing measures for comparison. Finally, we conclude our findings and propose areas for future work in section 5. |
| title | Multivariate Residual Estimation Risk |
| topic | Risk Management |
| url | https://arxiv.org/abs/2603.17792 |