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Medium · risk_management · Quant Researcher interview question · var_backtesting, kupiec, likelihood_ratio, risk_management, regulatory
The Kupiec Proportion of Failures (POF) test is a foundational method in quantitative risk management for backtesting Value-at-Risk (VaR) models. It uses a likelihood-ratio test to determine if the observed frequency of VaR exceedances is statistically consistent with the expected frequency given the model's confidence level. This test provides a crucial, unconditional assessment of a VaR model's calibration. Task Implement the function kupiec_pof_test(failures: int, total: int, confidence_leve