In the work of the Basel Committee there has been a tradition ofdistinguishing market from credit risk and to treat both categories independentlyin the calculation of risk capital. In practice positionsin a portfolio depend simultaneously on both market and credit riskfactors. In this case, an...

We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in the current practice of macro stress testing. Our method quantifies the plausibility of scenarios by considering the distance of the stress scenario from an average scenario....