Backtesting
Backtesting
Backtesting for Reporting
Backtesting is an exercise that compares the actual outcome with model forecasts during a defined period. It can be considered a form of outcome analysis to monitor model performance and determine if adjustments or revisions are needed over time.
Q factors
Backtesting Qualitative Factors
Backtesting refers to retroactively validating the accuracy of an institution’s methodology. This consists of pinning the ALLL calculation against actual credit losses to determine the degree of variance. If an institution’s prior backtesting efforts show that their allowance calculation has consistently been accurate with their qualitative adjustments, it can serve in the defensibility of the ALLL and in justifying Q factor adjustments moving forward.