Introduction:

Basically this measure is a count of the events for which the loss of assets exceeds the loss predicted by the model as a function of the confidence level c. The count is normalized by the theoretical expectation of the exceedence count - and hence we refer to this as the exceedence ratio. This measure is a relatively coarse measure since it is not sensitive in distinguishing models which have the same exceedence count but a different degree of exceedence.