The Kupiec log-likelihood ratio is used for: A. estimating interest-rate spread volatility. B. estimating the delta-normal VAR of option portfolios. C. stress-testing VAR models. D. backtesting VAR models.
The Kupiec log-likelihood ratio is used to backtest VAR models based on the probability of exceptions, the number of exceptions, and the number of observations. The model is rejected if the ratio is greater than 3.84.
