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April 18, 20260 citationsOpen Access

Contaminated by Construction: Separating Simulation Noise from Model Risk in ES Backtests

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TNTamás Nagy

Key Points

  • The study aims to investigate the impact of computational noise on Expected Shortfall backtesting under Basel guidelines.
  • Analysis of the Acerbi-Székely test statistic
  • Monte Carlo estimation techniques
  • Formal verification using Lean 4 and Platonic kernel
  • Demonstrated that Monte Carlo methods introduce significant computational noise
  • Identified unmeasured structural weaknesses in the backtesting framework
  • Proposed implications for improved risk assessment techniques

Abstract

Expected Shortfall backtesting under Basel III/IV suffers from an unmeasured structural weakness: Monte Carlo estimation of ES injects computational noise into the Acerbi-Székely (2014) test statistic, but the magnitude of this contamination has not Maturity: Working Paper. Target venue: Journal of Banking and Finance. Includes formal verification (Lean 4 / Platonic kernel). Part of The Latent research program.

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Cite This Study

Tamás Nagy (2026) studied this question.

synapsesocial.com/papers/69e320af40886becb653fd90https://doi.org/10.5281/zenodo.19605107
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