This study aims to evaluate the techniques used for the validation of default probability (DP) models. By generating simulated stress data, we build ideal conditions to assess the adequacy of the metrics in different stress scenarios. In addition, we empirically analyze the evaluation metrics...

Climate change has become a pressing issue that requires comprehensive and scientific understanding of its impact on the economy. Policymakers seek answers to the questions of how climate change affects economic growth, inflation, and the financial system. To design targeted policies, it is...

Stress testing has become an important topic in banking practice since the development of the risk management and the enforcement of international supervisory requirements. While, in the context of credit risk, the regulatory perspective is mainly focused on stressing risk parameters, we propose...

We propose a framework for stress testing the resilience of a financial network to external shocks affecting balance sheets. Whereas previous studies of contagion effects in financial networks have relied on large scale simulations, our approach uses a simple analytical criterion for resilience...

This paper deals with stress tests for credit risk and shows how exploiting the discretion when setting up and implementing a model can drive the results of a quantitative stress test for default probabilities. For this purpose, we employ several variations of a CreditPortfolioView-style model...

If climate change continues unabated, extreme weather events are expected to occur more frequently. Rising flood incidence will especially affect low-lying countries, both through property damage and macro-financial adversity. Using a stress test framework and geocoded data on real-estate...