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Comparison of stress testing models for regulatory purposes by institutions using the IRBA method

Porovnání stres test modelů pro regulatorní účely institucí využívajících IRBA metodu

Michal Kováč

Český finanční a účetní časopis, 2018, vol. 2018, issue 3, 41-56

Abstract: This paper deals with the comparison of stress tests of institutions using the IRBA method for determining the capital requirement. Different approaches have been used to determine the values of risk parameters PD, EAD and LGD for stres test purpose. Besides the VEC model, which link risk parameters to selected macroeconomic variables, stress tests were constructed using the absolute values model, the relative change model and the VaR model, CVaR respectively. Individual approaches have been tested and compared in two levels. In the first level was stressed only the risk parameter PD, in the second level, all risk parameters were stressed. Empirical analysis on the retail portfolio of retail clients in the Czech Republic during 2005 - 2017 showed some significant differences in the value of capital among some approaches. It has also been demonstrated that by using the appropriate method for stressing only the PD parameter, the same value of capital can be achieved as in the case of stressing all risk parameters simulating the conditions required by the Basel Committee.

Keywords: Stress test; Retail clients; VECM; VaR; Historical simulation; Stres test; Retail klientela; Historické simulace (search for similar items in EconPapers)
JEL-codes: C53 G28 G32 (search for similar items in EconPapers)
Date: 2018
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Český finanční a účetní časopis, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3

DOI: 10.18267/j.cfuc.516

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