What is Backtesting?

Legal Definition
Backtesting is a term used in oceanography, meteorology and the financial industry to refer to testing a predictive model using existing historic data. Backtesting is a kind of retrodiction, and a special type of cross-validation applied to time series data.
-- Wikipedia
Legal Definition
The process of determining the validity of a VALUE ATRISK model by comparing actual profit and loss experience with results predicted by the model. The process is also applicable in investment management, where a current securities selection methodology is applied to prior periods to create a hypothetical performance history. See also PROFIT AND LOSS EXPLAIN.