Reverse stress testing: Scenario design for macroprudential stress tests

DOI10.1111/MAFI.12373MaRDI QIDQ6054451zbMATH OpenOpenAlexFDO

Authors Michel Baes, Eric Schaanning

Publication date 28 September 2023

Published in Mathematical Finance (Search for Journal in Brave)

Copyright license Creative Commons Attribution-NonCommercial 4.0 International

Full work available at URL https://doi.org/10.1111/mafi.12373

zbMATH Keywords

contagionfinancial stabilityfire salesoptimal deleveragingreverse stress testingstress scenario designstress testingsystemic risk

Mathematics Subject Classification ID

Financial networks (including contagion, systemic risk, regulation) (91G45)

Recommendations

• Quantitative reverse stress testing, bottom up
• Backtesting macroprudential stress tests
• Systematic scenario selection: stress testing and the nature of uncertainty
• Stress scenario selection by empirical likelihood
• A financially justifiable and practically implementable approach to coherent stress testing

Cites work

• A repo model of fire sales with VWAP and LOB pricing mechanisms
• Combinatorial optimization. Theory and algorithms.
• Convex Analysis
• Financial contagion and asset liquidation strategies
• Fire sales forensics: measuring endogenous risk
• No-dynamic-arbitrage and market impact
• Overlapping portfolios, contagion, and financial stability
• Price Manipulation and Quasi-Arbitrage
• Price mediated contagion through capital ratio requirements with VWAP liquidation prices
• Risk-based capital requirements and optimal liquidation in a stress scenario
• Running for the exit: distressed selling and endogenous correlation in financial markets
• Strategic fire-sales and price-mediated contagion in the banking system
• Stress scenario selection by empirical likelihood
• Systematic scenario selection: stress testing and the nature of uncertainty
• The topology of overlapping portfolio networks
• Uniqueness of equilibrium in a payment system with liquidation costs

Cited in

(13)

• Backtesting macroprudential stress tests
• Macro-stress testing dividend income. Evidence from euro area banks
• A coherent aggregation framework for stress testing and scenario analysis
• Stress scenario selection by empirical likelihood
• Systematic scenario selection: stress testing and the nature of uncertainty
• Model-based approach for scenario design: stress test severity and banks' resiliency
• A financially justifiable and practically implementable approach to coherent stress testing
• Multivariate stress scenario selection in interbank networks
• Quantitative reverse stress testing, bottom up
• Optimal stress tests and liquidation cost
• Bank Stress Testing: Public Interest or Regulatory Capture?
• Stressing dynamic loss models
• A proximity based macro stress testing framework

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