Journal of Risk Model Validation

Liquidity stress testing: a model for a portfolio of credit lines

Marco Geidosch

  • A model practioners can easily apply to their institute-specific liquidity stress tests is presented.
  • The model is based on bootstrapping from a portfolio's daily time series of credit line drawdowns.
  • The model is intuitive, flexible and exposed to a very low degree of model risk.
  • A simulation study shows the reasonable behaviour of the model output towards changes in several input parameters.


In this paper, we demonstrate how cash outflows due to credit lines can be modeled in a liquidity stress test. Our model is based on bootstrapping from a portfolio time series of daily credit line drawdowns. Key features of our model are (i) that it does not rely on any distributional assumptions or any complex parameter estimation, ie, the model risk is low; (ii) that it is intuitive and straightforward to implement; (iii) that it is very flexible and allows the portfolio's free amount to be reduced during the stress test horizon; and (iv) that it calculates an outflow profile with daily granularity. In a detailed simulation study, we demonstrate the reasonable behavior of the model output toward changes in several input parameters.

To continue reading...

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: