Stress Testing for Financial Institutions
First published:
ISBN: 9781906348113
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Uncertainty, Credit Migration, Stressed Scenarios and Portfolio Losses
Jorge Sobehart
Integrating Stress-Testing Frameworks
Stress Tests, Market Risk Measures and Extremes: Bringing Stress Tests to the Forefront of Market Risk Management
Credit Cycle Stress Testing Using a Point-in-Time Rating System
Stress-Testing Credit Value-at-Risk: a Multiyear Approach
Stress Testing the Impact of Group Dependence on Credit Portfolio Risk
Hedge the Stress: Using Stress Tests to Design Hedges for Foreign Currency Loans
Survey of Retail Loan Portfolio Stress Testing
Stress Tests for Retail Loan Portfolios
Stress-Testing Banks’ Credit Risk Using Mixture Vector Autoregressive Models
Uncertainty, Credit Migration, Stressed Scenarios and Portfolio Losses
Worst-Case and Stressed Correlations in the Asymptotic Single Risk Factor Model
Risk Aggregation, Dependence Structure and Diversification Benefit
Stress-Testing Credit Distributions of Banks’ Portfolios: Risk Structure and Concentration Issues
Time-Varying Correlations for Credit Risk: Modelling, Estimating and Stress Testing
Macro Model-Based Stress Testing of Basel II Capital Requirements
Risk Tolerance Concepts and Scenario Analysis of Bank Capital
Basel II-Type Stress Testing of Credit Portfolios
PORTFOLIO LOSSES, STRESSED SCENARIOS AND CREDIT RISK CAPITAL
The approach to measuring risk and managing capital has evolved at an accelerated pace over the past decade. This accelerated pace of change reflects the shift from identifying and studying methodologies for loss provisioning, capital measurement and allocation to actually creating the necessary infrastructure and implementing these methodologies. New regulatory guidance on capital adequacy (Basel Committee on Banking Supervision 2004, 2005a,b; Jones and Mingo 1998; and Nuxoll 1999) provides strong incentive for financial institutions to use internal risk management systems to measure risk and determine sufficient regulatory and economic risk capital. While commercial risk measurement tools can be used as components of an overall solution, most institutions recognise that such systems must be tailored to their own portfolios and that some of the development and implementation work will fall to their own risk management teams.
Broadly, risk capital can be defined as a cushion to absorb unexpected losses in a portfolio at a very high confidence level. Technically it is defined as the portfolio loss at a given confidence
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