BoE stress testing framework has been a tool that the central bank and regulators have used to keep the banks honest since the recession. Stress testing driven by CCAR in the US, EBA and BoE in Europe and UK respectively is used to assess if banks have the required capital to withstand extreme market moves. 493 more words
Tags » CCAR
As mentioned in the previous post (https://statcompute.wordpress.com/2017/06/29/model-operational-loss-directly-with-tweedie-glm/), we often need to model non-negative numeric outcomes with zeros in the operational loss model development. Tweedie GLM provides a convenient interface to model non-negative losses directly by assuming that aggregated losses are the Poisson sum of Gamma outcomes, which however might not be well supported empirically from the data generation standpoint. 769 more words
In the previous post (https://statcompute.wordpress.com/2017/06/29/model-operational-loss-directly-with-tweedie-glm), it has been explained why we should consider modeling operational losses for non-material UoMs directly with Tweedie models. However, for material UoMs with significant losses, it is still beneficial to model the frequency and the severity separately. 748 more words
In the development of operational loss forecasting models, the Frequency-Severity modeling approach, which the frequency and the severity of a Unit of Measure (UoM) are modeled separately, has been widely employed in the banking industry. 574 more words
This would be a very high-level simplification of what in reality is an incredibly complex exercise involving risk modeling experts and quants.
Banking “stress tests” are usually presented to the bank by regulators as a macroeconomic scenario (i.e.: unemployment rate increases, inflation decreases, etc.) which must then be converted to financial “risk factors” that impact the bank in some way. 158 more words