A new heuristic measure of fragility and tail risks : application to stress testing

Nassim N. Taleb, Elie Canetti, Tidiane Kinda, Elena Loukoianova, and Christian Schmieder

This paper presents a simple heuristic measure of tail risk, which is applied to individual bank stress tests and to public debt. Stress testing can be seen as a first order test of the level of potential negative outcomes in response to tail shocks. However, the results of stress testing can be misleading in the presence of model error and the uncertainty attending parameters and their estimation. The heuristic can be seen as a second order stress test to detect nonlinearities in the tails that can lead to fragility, i.e., provide additional information on the robustness of stress tests. It

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Year of publication:	2012
Authors:	Taleb, Nassim Nicholas ; Canetti, Elie ; Kinda, Tidiane ; Loukoianova, Elena ; Schmieder, Christian
Publisher:	Washington, DC : Internat. Monetary Fund
Subject:	Bank \| Finanzkrise \| Financial crisis \| Bankrisiko \| Bank risk \| Risikomanagement \| Risk management \| Heuristik \| Heuristics

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Extent:	Online-Ressource (PDF-Datei: 23 S., 1,095 KB) graph. Darst.
Series:	IMF working papers. - Washington, DC : IMF, ZDB-ID 2108494-4. - Vol. 12/216 IMF Working Papers
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Notes:	Includes bibliographical references Systemvoraussetzungen: Acrobat Reader Cover; Contents; I. Introduction; II. Review of Concepts to Assess Fragility; A. The Current State of Stress Testing; B. A Simple Heuristic to Detect Fragility; Figures; 1. Why the Concave is Hurt by Tail Events; C. How Can the Simple Heuristic Enhance Stress Tests?; III. The Heuristic Applied to the Outcome of Stress Tests; A. Purpose for the Use of the Heuristic; 2. Illustration of the Use of the Heuristic; 3. Fragile and Antifragile Outcomes of Stress Tests; B. Case Study I: The Simple Heuristic Applied to Bank Stress Tests; Tables 1. The Heuristic Applied to the Outcome of Macroeconomic Stress Tests for the Largest U.S. BanksC. Case Study II: The Simple Heuristic Applied to Public Debt; 2. Overall Fragility of Banks; 3. Change in Net Debt Under Various Scenarios; IV. How to Apply the Simple Heuristic in IMF Stress Tests; 4. Illustration of Debt Dynamics Under Various Scenarios; 5. The Simple Heuristic as an Integral Part of Stress Test Frameworks; V. Conclusion; Appendices; I. Details on Macroeconomic Bank Stress Test; II. Details on Public Debt Stress Test; References Electronic reproduction; Available via World Wide Web
ISBN:	978-1-4755-0566-5 ; 978-1-4755-1497-1 ; 978-1-4755-0566-5
Source:	ECONIS - Online Catalogue of the ZBW

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