In the work of the Basel Committee there has been a tradition of distinguishing market from credit risk and to treat both categories independently in the calculation of risk capital. In practice positions in a portfolio depend simultaneously on both market and credit risk factors. In this case,...

We introduce the technique of worst case search to macro stress testing. Among the macroeconomic scenarios satisfying some plausibility constraint we determine the worst case scenario which causes the most harmful loss in loan portfolios. This method has three advantages over traditional macro...