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This paper proposes an integrated risk-management framework that includes:1) measuring the risk of credit portfolios, 2) implementing a (macro) stress test, and 3) setting risk limits using the estimated systematic latent factor specific to capture the housing market cycle. To this end, we...
Persistent link: https://www.econbiz.de/10012946825
Regulatory capital for trading book positions includes two components that cover different risks but apply to the same portfolio, one for market risk and one for credit risk. Similar approaches are common in banks’ internal models for economic capital. Although it is known that joint market...
Persistent link: https://www.econbiz.de/10011299075
We present a stochastic simulation forecasting model for stress testing that is aimed at assessing banks’ capital adequacy, financial fragility, and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on...
Persistent link: https://www.econbiz.de/10011890804
The recent global financial crisis has important implications for the future of financial markets in that it underscores the need for assessing the health of systemically important economies. In this study, we construct a macroeconomic credit risk model, employing data from 1995Q1 to 2009Q1, to...
Persistent link: https://www.econbiz.de/10013133475
We enhance the method of integrating scenarios proposed in Ergashev (2012) into risk models. In particular, we provide additional theoretical insights of the method with focus on stress testing Value-at-Risk models. We extend the application of the method, which is originally proposed for...
Persistent link: https://www.econbiz.de/10013067845
This paper applies a filtered historical simulation (FHS) approach to macroeconomic scenario generation. The aim of the approach is to generate more plausible macroeconomic scenarios than other macroeconomic scenario models such as the global vector autoregression (GVAR) model. This paper shows...
Persistent link: https://www.econbiz.de/10012926995
Gradient capital allocation, also known as Euler allocation, is a technique used to redistribute diversified capital requirements among different segments of a portfolio. The method is commonly employed to identify dominant risks, assessing the risk-adjusted profitability of segments, and...
Persistent link: https://www.econbiz.de/10014252258
We investigate default probabilities and default correlations of Merton-type credit portfolio models in stress scenarios where a common risk factor is truncated. The analysis is performed in the class of elliptical distributions, a family of light-tailed to heavy-tailed distributions...
Persistent link: https://www.econbiz.de/10010348358
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