Mapping swap rate projections on bond yields considering cointegration: an example for the use of neural networks in stress testing exercises

Nikolas Stege (), Christoph Wegener (), Tobias Basse () and Frederik Kunze ()
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Nikolas Stege: Leibniz University Hannover
Christoph Wegener: Leuphana University Lüneburg
Tobias Basse: Nord/LB
Frederik Kunze: Nord/LB

Annals of Operations Research, 2021, vol. 297, issue 1, No 14, 309-321

Abstract: Abstract This paper discusses the application of techniques of business analytics in the banking industry examining stress tests in the context of financial risk management. We focus on the use of neural networks in combination with techniques of cointegration analysis to map swap rate projections derived from given scenarios (e.g., a certain stress scenario from the EBA/ECB 2016 EU-wide stress test) on other relevant interest rates in order to ensure that contingent projections for these time series are produced and used in the process of stress testing.

Keywords: Risk management; Net interest rate income; Modeling interest rates; Cointegration; Artificial neural networks (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10479-020-03762-x

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