19. - 20. 4. 2021

Stress Testing

Quantitative Techniques, Regulatory Framework and Practical Use in Risk Management

Přihlásit se Agenda Program Online Video
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K dispozici výhradně jako online školení
Cena online školení
26.625 Kč + DPH
Gary Dunn
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How you will benefit:

An understanding of the value and challenges of stress testing
Gain theoretical and practical understanding of stress testing methodology
Develop a joint approach to ICAAP and ILAAP
Gain experience of facing regulatory challenge (mainly live course)
Stress testing has become an important tool for risk management and a key part of the regulatory framework. This course discusses various approaches to generating stress scenarios, simple ‘what-if’ scenarios and simulation techniques through to the use of full structural macroeconomic models of the global economy. It will look at examples of impact on the balance sheet and P&L projections under stress scenarios.

Many types of risk can be exposed by stress testing that may not be apparent using only models calibrated to recent historical data. These risks are explored by looking at potential impact on regulatory indicators under stress scenarios. Hence the impact on capital ratios is explored and also the LCR and NSFR indicators of liquidity and the impact of stress scenarios on IRRBB (interest rate risk in the banking book) and the leverage ratio.

The course will also consider regulatory guidelines to stress testing and looks at regulatory stress testing exercises, for example, EBA/ECB, Bank of England and DFAST/CCAR.

An innovative area of focus on the course will be on coherent approaches to risk aggregation in order to construct an economic capital number based on stressed scenarios.

Participants will engage in Spreadsheet-based exercises and also role-playing exercises (live courses only) where time constraints and class sizes permit. Role-playing exercises will be used to practice engagement with a regulator, defending assumptions and responding to likely regulatory challenge.

The course has four main objectives:
  • To provide a comprehensive overview of stress testing approaches
  • Develop quantitative techniques:
    • Scenario construction
    • A look at some modelling techniques: Econometric models, vector autoregressions, Kalman Filters, stochastic simulation, pricing options, modelling behavioural options, non performing loans, basis risk, credit spreads.
    • Mapping economic scenarios to risk factors affecting valuations and P&L
  • Computation of risk metrics under stress: regulatory capital ratios, leverage ratio, EVE, NII, LCR and NSFR.
  • Risk aggregation and assigning probabilities to stress scenarios in order to compute an economic capital number
PDF brožura s podrobnostmi o Stress Testing semináři je k dispozici na vyžádání.

Program semináře: Stress Testing

09.00 - 09.10 Welcome

09.10 - 12.30 Module 1


  • What is Stress Testing?
    • Bank use test – regulatory and bank views
  • Principles for sound stress testing
    • Model risk
  • How do we calibrate risk factor scenarios?
  • Reverse Stress Testing
  • Applying risk factor scenarios to the balance sheet and to P&L projections
  • Introduction to the Basel Consolidated Framework
  • Regulatory Ratios
    • Capital
    • Leverage
    • Liquidity – LCR and NSFR
  • Internally developed objective functions for solvency and liquidity

Case Studies

  • Lehman
  • Northern Rock

12.30 - 13.30 Lunch Break

13.30 - 17.00 Module 2

Setting Macroeconomic Scenarios

  • Structural macroeconomic Models
  • A look at the NIESR and OEF models as examples
  • Statistical approaches to time series modelling (introduction)
  • Are correlations meaningful?
  • Stochastic Simulation and Monte Carlo
  • Mapping to risk factors, risk factor simulation and option pricing
  • The Stock Market and GDP
  • Interest rates and the yield curve – central bank policy
  • BCBS 239

Case Study – COVID-19

09.00 - 12.30 Module 3

Market Risk and Market Risk Weighted Assets

  • Market Risk Shocks and stressed RWAs, a 2-part problem
  • FRTB guide to stress testing market risk
  • Basel framework on market risk
  • VaR, Expected Shortfall and the role of capital
  • ‘What – if’ and risk factor simulation
  • Volatility scaling, FHS and Kalman Filter approaches
  • Extreme Value Theory
  • Stahl Inequality
  • Distorted probabilities

Credit Risk and Credit Risk Weighted Assets

  • Basel framework on credit risk
  • Stressed PDs and LGDs
  • Credit Metric type models
  • ‘What – if’ and Large Exposures
  • Counterparty Credit Risk

Case Study – Climate Change

Operational Risk and Operational Risk weighted Assets

  • Basel framework on operational risk
  • Internal models for operational risk
    • Poisson processes and impact distributions
    • Fat-tailed distributions
    • Monte-Carlo and copulas

12.30 - 13.30 Lunch Break

13.30 - 17.00 Module 4

Liquidity Risk

  • Stress testing liquidity and contingency fund planning
    • Liquidity Buffers and other sources of liquidity
  • Basel framework on liquidity risk
    • LCR, NSFR the regulatory metrics for liquidity risk
    • Liquidity stress test exercise
  • Case Study – Survival Horizon

Interest Rate Risk in the Banking Book

  • EVE and NII
  • Non maturing deposits – behaviouralisation, core deposits
  • BCBS D368
    • Stress Testing Standards for IRRBB
    • The standardised Framework for IRRBB
  • Credit Spread Risk in the Banking Book (CSRBB)

Other Risks

  • Collateral requirements
  • Exposure to CCPs
  • Systemic Risk


  • Stress Testing requirements

A joined-up approach

  • Risk Aggregation
    • Monte Carlo
    • A Bayesian Approach

Regulatory Stress Testing Exercises

  • EBA
  • CCAR
  • Bank of England

Termination and Evaluation of the Seminar

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