Journal of Risk Model Validation
ISSN:
1753-9579 (print)
1753-9587 (online)
Editor-in-chief: Steve Satchell
Worst-case asset, default and survival time correlations
Steffi Höse, Stefan Huschens
Abstract
ABSTRACT
The asymptotic single risk factor model is a standard model in the banking industry and is also used in the regulatory framework. In the context of this model, higher correlations do not always lead to higher stress and increased economic capital. Using this fact, worst-case asset, default and survival time correlations less than one are identified, and the concept of the worst-case economic capital is introduced. These worst-case scenarios are important aspects of stress testing, as they build the most adverse stressed scenarios. In an example, the calculation of worst-case correlations and worst-case scenarios for the economic capital are illustrated.
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Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
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