Back Test
Backtesting is a statistical method that verifies the actual losses incurred (actual loss) compared to the losses predicted or projected earlier (potential future exposure) through the calculation of the initial margin. Backtesting is used solely to measure the accuracy of the initial margin calculation, which is based on historical data, such as Historical Simulation Value at Risk (HSVaR), Alternate HSVaR, and Standardized Portfolio Analysis of Risk (SPAN). Accuracy is considered good if the actual loss does not exceed the initial margin within a certain tolerance level.