Dynamic Stress Test Diffusion Model Considering the Credit Score Performance

Benoit Genest, Ziad Fares and Arnault Gombert

MPRA Paper from University Library of Munich, Germany

Abstract: After the crisis of 2008, and the important losses and shortfall in capital that it revealed, regulators conducted massive stress testing exercises in order to test the resilience of financial institutions in times of stress conditions. In this context, and considering the impact of these exercises on the banks’ capital, organization and image, this white paper proposes a methodology that diffuses dynamically the stress on the credit rating scale while considering the performance of the credit score. Consequently, the aim is to more accurately reflect the impact of the stress on the portfolio by taking into account the purity of the score and its ability to precisely rank the individuals of the portfolio.

Keywords: Basel III; Dodd Frank; Stress testing; CCAR; Gini; Rating scale; PD (search for similar items in EconPapers)
JEL-codes: C3 C5 G1 (search for similar items in EconPapers)
Date: 2014-01-01
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:62905

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