harry_summy
New Member
Hello David
The terms Stress and scenario analysis has been repeatatively appearing in the entire FRM, irrespective of risk type, i.e., market or credit. In most of the texts these are seperately explained, sometimes bundlged together, no specific definition or vaguely broadly defined.
As I understand, from credit risk perspective, stress and scenaro analysis allows us to address specific shortcomings, or extreme tail events in the standard credit risk models, or it comes into picture where we want to explore the extreme loss in a particular portfolio wherein the dependencies (correlations) between PD and counterparty expore (potential credit exposure) are not correctly captured by the standard models. It can further include other parameters like business or strategic risk.
Coming to my specific queries:
How the problem of aggregation is taken care in stress and scenario analysis from firmwide perspective taking into all types of risk into account, i.e., credit, market and operational risk.
what are the major techniques used by banks in doing the stress testing.
Whether Basel-II specifically prescribes the method of stress testing or its left to individual banks/supervisors to decide upon.
If you have any specific book/reference material to learn about stress testing and scenario analysis, kindly share the same.
Regards,
Harish
The terms Stress and scenario analysis has been repeatatively appearing in the entire FRM, irrespective of risk type, i.e., market or credit. In most of the texts these are seperately explained, sometimes bundlged together, no specific definition or vaguely broadly defined.
As I understand, from credit risk perspective, stress and scenaro analysis allows us to address specific shortcomings, or extreme tail events in the standard credit risk models, or it comes into picture where we want to explore the extreme loss in a particular portfolio wherein the dependencies (correlations) between PD and counterparty expore (potential credit exposure) are not correctly captured by the standard models. It can further include other parameters like business or strategic risk.
Coming to my specific queries:
How the problem of aggregation is taken care in stress and scenario analysis from firmwide perspective taking into all types of risk into account, i.e., credit, market and operational risk.
what are the major techniques used by banks in doing the stress testing.
Whether Basel-II specifically prescribes the method of stress testing or its left to individual banks/supervisors to decide upon.
If you have any specific book/reference material to learn about stress testing and scenario analysis, kindly share the same.
Regards,
Harish
