Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264742 
Year of Publication: 
2009
Series/Report no.: 
Working Paper No. 150
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
We give a precise operational definition to three requirements the Basel Committee on Banking Supervision specifies for stress tests: Plausibility and severity of stress scenarios as well as suggestiveness of risk reducing actions. The basic idea of our approach is to define a suitable region of plausibility in terms of the risk factor distribution and search systematically for the worst portfolio loss over this region. One key innovation compared to the existing literature is the solution of two open problems. We suggest a measure of plausibility that is not prone to the problem of dimensional dependence of maximum loss and we derive a way to consistently deal with situations where some but not all risk factors are stressed. Among the various approaches used for partial scenarios, plausibility is maximised by setting the non stressed risk factors to their conditional expected value given the value of the stressed risk factors.
Subjects: 
Stress testing
maximum loss
risk management
banking regulation
JEL: 
G28
G32
G20
C15
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.