The positive correlation stress test When it comes to stress testing market portfolios one idea has been finding increasing traction with risk management teams. The 100% positive correlation stress test. The concept is simple. We opt for a diversified portfolio because we want to reduce
A guide to reverse stress testing A typical stress test creates a scenario and evaluates how a bank would fare under it. Compared to reverse stress testing, conventional stress tests are used to assure shareholders, regulators and customers that the capital on bank balance sheet
So far we have presented two methods for estimating Economic Capital. The first uses the worst case change in Shareholders equity, the second the volatility of the same changes. The challenge with method one and two is that they use capital adequacy as the determining
A short review of stress testing regulatory frameworks. Stress testing is evaluating the impact of large, expected as well as unexpected shocks on a bank’s capital. With the global financial crisis of 2008, EU debt crisis, Libor scandal and rampant rogue trading, it has become
Two new online video based courses that cover the topics of Asset Liability Management (ALM), Capital Adequacy and Stress Testing at an intermediate level. The Stress Testing, ALM & Capital Adequacy Crash Course includes over 500 minutes of video instruction, while the shorter ALM & Capital Adequacy course covers the basics of both topics in under 150 minutes.
Stress testing refers to a process through we which we try and assess the impact of abnormal and extreme conditions on our processes, control systems and organizations.
Within financial services stress testing takes a second dimension where the focus shifts from assessing impact to identifying breaking points; the maximum amount of stress a financial institution would be able to bear before it breaks down and fails. The level of interconnectivity between financial markets and institutions has made this threshold of failure even more important since a since the failure of a single institution can trigger a deep and painful system wide crisis that can very easily turn into a regional or global contagion.