How time-step stress-testing helped Deutsche navigate Covid
Market risk chief touts importance of repeat stress-testing over point-in-time methods
When Covid-19 slammed markets last March, traditional gauges of exposure such as value-at-risk were overwhelmed.
VAR’s limitations as a gauge of tail risk are well known; with most banks using a lookback period of between one and five years to gauge a trading book’s value at risk, the unprecedented one-day falls in some equity and credit markets witnessed as Covid-19 slammed markets meant no model would have been calibrated to cope. Deutsche Bank alone saw 28 VAR exceptions between January and
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