Technical paper/Stress-testing
Tailoring tails within the mixture model framework
Introducing a data generator mixing Gaussian and Student-t distributions to capture fat tails
Validating bank risk models under trade war stress: a framework for adaptive stress testing with AI-driven calibration and cross-industry applications
Interpretable machine learning for default risk prediction in stress testing
An aggregated metrics framework for multicriteria model validation using rolling origin evaluation
Key principles for operational risk stress testing design and evaluation
The author surveys operational stress testing methods and proposes a conceptual framework for designing operational risk stress tests.</li>
The WWR in the tail: a Monte Carlo framework for CCR stress testing
A methodology to compute stressed exposures based on a Gaussian copula and mixture distributions is introduced
The effects of climate transition risk on an investment portfolio
The author proposes a means to value portfolios under a climate transition stress test, showing which sectors are likely to be more severely impacted by a transition to a net-zero economy.
We will shock you: a coherent Bayesian approach for stress testing
The authors propose a novel coherent Bayesian stress test method which preserves the mathematical properties of the risk measures.
Bridging the gap risk reloaded: modelling wrong-way risk and leverage
A model extends the counterparty risk calculation to include nonlinear and complex portfolios
Construction of hypothetical scenarios for central counterparty stress tests using vine copulas
Using the vine copula, the authors put forward a nonparametric means to generate and/or validate hypothetical stress scenarios.
Quantification of model risk with an application to probability of default estimation and stress testing for a large corporate portfolio
This paper discusses the building of obligor-level rather than segment-level hazard rate corporate probability of default models for stress testing.
Correlations in operational risk stress testing: use and abuse
The paper presents an analysis of correlation effects of economic factors on the operational risk losses of a medium-large UK retail bank, and it recommends that causal factors that effect operational risk should be identified.
On comprehensive balance sheet stress testing and net interest income risk attribution
In this paper the authors propose a framework for granular-level stressed net interest income calculation and profit-and-loss risk attribution.
Climate risk and central counterparty risk management
In this paper, the European Association of CCP Clearing Houses discusses several aspects of climate risk, including how climate risk is currently integrated into central counterparty stress testing, the metrics within climate risk and how central…
A survey of machine learning in credit risk
This paper surveys the impressively broad range of machine learning methods and application areas for credit risk.
Comprehensive Capital Analysis and Review consistent yield curve stress testing: from Nelson–Siegel to machine learning
This paper develops different techniques for interpreting yield curve scenarios generated from the FRB’s annual CCAR review.
Modeling loss given default regressions
The authors investigate the puzzle in the literature that various parametric loss given default (LGD) statistical models perform similarly, by comparing their performance in a simulation framework.
Stress testing household debt
The authors estimate a county-level model of household delinquency and use it to conduct “stress tests” of household debt.
A FAVAR modeling approach to credit risk stress testing and its application to the Hong Kong banking industry
In this paper, a credit risk stress testing model based on the factor-augmented vector autoregressive (FAVAR) approach is proposed to project credit risk loss under stressed scenarios.
Hypothetical yield curve scenarios for credit stress testing
In this paper, we discuss a set of hypothetical yield curve shift scenarios generated by applying extreme value distributions and a shaping procedure. These statistically derived hypothetical stress scenarios could be susceptible to model risk, leading…
Benchmarking operational risk stress testing models
This paper outlines several approaches to benchmarking operational loss projections under stressed scenarios using both accounting metrics and historical loss experience.
Measuring economic cycles in data
This paper determines if enough data is available for forecasting or stress testing, a better measure of data length is required.
Supervisory stress testing for central counterparties: a macroprudential, two-tier approach
This paper examines the role of supervisory stress testing of central counterparties (CCPs). A key message is that the design of supervisory stress tests (SSTs) should be tailored to CCPs’ roles, risk profiles and financial structures.
A triptych approach for reverse stress testing of complex portfolios
Pascal Traccucci et al present an extended reverse stress test triptych approach with three variables