In the work of the Basel Committee there has been a tradition of distinguishing market from credit risk and to treat both categories independently in the calculation of risk capital. In practice positions in a portfolio depend simultaneously on both market and credit risk factors. In this case,...

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...

For a given set of banks, which economic and financial scenarios will lead to big losses? How big can losses in such scenarios possibly get? These are the two central questions of macro stress tests. We believe that most current macro stress testing models have deficits in answering these...

We present a simple and operational yet rigorous framework that combines current methods of bank solvency stress tests with a description of fire sales. We demonstrate the applicability of our framework to the EBA stress testing exercise. Fire sales are described by an equilibrium model which...

The various calculations of the impacts of biofuel production on the mid-term projections of food and agricultural commodity prices are difficult to reconcile. This is largely due to the intricate set of assumptions, the differences in the baseline scenario and in the projection horizon they are...

The Czech Republic, Hungary and Poland (CEEC-3) have undertaken substantial efforts to build a new financial system under the constraints of their legacies from central planning. In this study, first we look at the banking sector. Then we give a description of bond and stock markets. These...

This paper contributes to the literature on default in general equilibrium. Borrowing and lending takes place via a clearing house (bank) which monitors agents and enforces contracts. Our model develops a concept of bankruptcy equilibrium that is a direct generalization of the standard general...

Credit risk models used in quantitative risk management treat credit risk analysis conceptually like a single person decision problem. From this perspective an exogenous source of risk drives the fundamental parameters of credit risk: probability of default, exposure at default and the recovery...

We analyze the pricing of risky income streams in a world with competitive security markets where investors are constrained by restrictions on possible portfolio holdings. We investigate how we can transfer concepts and pricing techniques from a world without frictions to such a more realistic...