File(s) not publicly available
Developing a stress testing framework based on market risk models
journal contribution
posted on 2023-06-08, 12:23 authored by Carol AlexanderCarol Alexander, Elizabeth SheedyThe Basel 2 Accord requires regulatory capital to cover stress tests, yet no coherent and objective framework for stress testing portfolios exists. We propose a new methodology for stress testing in the context of market risk models that can incorporate both volatility clustering and heavy tails. Empirical results compare the performance of eight risk models with four possible conditional and unconditional return distributions over different rolling estimation periods. When applied to major currency pairs using daily data spanning more than 20 years we find that stress test results should have little impact on current levels of foreign exchange regulatory capital.
History
Publication status
- Published
Journal
Journal of Banking and FinanceISSN
0378-4266Publisher
ElsevierExternal DOI
Issue
10Volume
32Page range
2220-2236Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2012-09-11Usage metrics
Categories
No categories selectedLicence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC