Analysis of backtesting graphs

Backtesting graphs prepared at a trading desk level as well as a whole bank level
can make certain problems very clear. A series of examples shows how backtesting
graphs can help check risk and P&L figures in practice, and reveal problems that
may not be easily seen by looking at separate risk and P&L reports. Most of the
examples below have been generated synthetically using normally distributed P&L,
and varying risk figures. Figure 9.5 uses the S&P 500 index returns and risk of an
index position.