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If Worst Comes to Worst: Systematic Stress Tests in General Risk Models
Year Of Publication: 2010
Month Of Publication: January
Pages: 30
Download Count: 19
View Count: 1824
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-20-2010
Publisher: Administrator
For arbitrary loss functions we determine explicitly the worst case
scenario over the Kullback-Leibler sphere. This result makes arbitrary
risk models accessible to systematic stress testing. The worst case
scenarios identified with this method are plausible, severe, and suggest
risk reducing action. Practical implementations of this method do
not require any numerical optimisation. The method is illustrated
in a number of example applications: linear and quadratic portfolios,
stressed credit default and transition probabilities, stressed default
and transition correlations.
Breuer, Thomas Sign in to follow this author
Csiszár, Imre Sign in to follow this author
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