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How to Find Plausible, Severe, and Useful Stress Scenarios
Year Of Publication: 2009
Month Of Publication: February
Pages: 29
Download Count: 49
View Count: 1877
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-20-2010
Publisher: Administrator
Summary
The authors give a precise operational definition to three requirements the Basel
Committee on Banking Supervision specifies for stress tests: Plausibility and severity
of stress scenarios as well as suggestiveness of risk reducing actions. The basic idea of
the authors’ approach is to define a suitable region of plausibility in terms of the risk
factor distribution and search systematically for the worst portfolio loss over this
region. One key innovation compared to the existing literature is the solution of two
open problems. The authors suggest a measure of plausibility that is not prone to the
problem of dimensional dependence of maximum loss and they derive a way to
consistently deal with situations where some but not all risk factors are stressed.
Among the various approaches used for partial scenarios, plausibility is maximised by
setting the non stressed risk factors to their conditional expected value given the value
of the stressed risk factors
Author(s)
Breuer, Thomas Sign in to follow this author
Rheinberger, Klaus Sign in to follow this author
Jandacka, Martin Sign in to follow this author
Summer, Martin Sign in to follow this author
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