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...

Most of the banks' operational risk internal models are based on loss pooling in risk and business line categories. The parameters and outputs of operational risk models are sensitive to the pooling of the data and the choice of the risk classification. In a simple model, we establish the link...