I am interested in hearing about the practitioner state of the art for testing the time independence of a VaR model (i.e. that VaR violations are independent in time). There are a number of tests in the literature. What do people actually use? Which are viewed as the most powerful and useful in the real world? I'm interested in hearing about what kinds of specific quantitative criteria people might use to cause them to re-evaluate their VaR model's current ability to handle violation clustering.
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3$\begingroup$ Although you seem to refer to Value at Risk (VaR), I wasn't sure in the first half of your question if you maybe refer to Vector AutoRegressive (VAR) models. $\endgroup$– KonstaOct 9, 2012 at 20:01
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$\begingroup$ @ Konsta and User915 : I have edited the question according to your comment. Best regards $\endgroup$– TheBridgeDec 3, 2012 at 23:10
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2 Answers
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The following thesis deals with VaR back testing procedures in the Basel framework link. In chapter 7 tests for violation clustering are presented. An R implementation of the runs test is e.g. given in the tseries package.
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The Kupiec test is frequently used to back test VaR values. I would refer you to read this article from the federal reserve
http://www.federalreserve.gov/pubs/feds/2005/200521/200521pap.pdf