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Stress tests: Objectives, challenges and modelling choices
Year Of Publication: 2008
Month Of Publication: June
Pages: 33
Download Count: 72
View Count: 2135
Comment Num: 0
Language: English
Who Can Read: Free
Date: 3-27-2010
Publisher: Administrator
Summary
Stress tests have become an integral tool for banks’ risk management
practices as well as for financial stability assessments by central banks.
But there has been no debate about the objectives of stress tests, even
though an understanding of those is essential when building and evaluating
stress testing models. This paper identifies three main objectives:
validation, decision making and communication. And it shows that different
objectives lead to different and possibly conflicting priorities for model
design. In the light of this discussion modelling choices are assessed and
two main challenges for stress testing models are discussed: data limitations
and the endogeneity of risk
Author(s)
Drehmann, Mathias Sign in to follow this author
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