Stress Testing for Risk Control Under Basel II

355 p.

Description based upon print version of record

Front Cover; Stress Testing for Risk Control under Basel II; Copyright Page; Table of Contents; Preface; Warning; Part 1 Stress testing defined; Chapter 1 The need for advanced testing methodology; 1.1 Introduction; 1.2 Risk distributions and extreme events; 1.3 Model uncertainty in simulation and testing; 1.4 Stress testing and the need for transparency; 1.5 Stress testing and confidence intervals; 1.6 Advanced testing methodology for better governance; 1.7 An introduction to the role of information technology in gaining competitiveness; Notes; Chapter 2 Risk and its management

2.1 Introduction2.2 Risk defined; 2.3 Risk associated with the counterparty; 2.4 Market risk and its variants; 2.5 Risk appetite and risk aversion; 2.6 Systemic risk and event risk; 2.7 Developing a system for risk management; Notes; Chapter 3 The dynamics of stress testing; 3.1 Introduction; 3.2 Stress testing defined; 3.3 Advanced testing and new financial instruments; 3.4 What is the benefit of stress testing?; 3.5 Scenarios, sensitivity analysis and statistical inference; 3.6 Capital at risk under extreme conditions: an example; 3.7 Stress testing and the devil's advocate

3.8 Advice on implementing the stress testNotes; Chapter 4 Stress analysis and its tools; 4.1 Introduction; 4.2 The need for a scientific approach; 4.3 Science and the scientific method; 4.4 Fundamentals of stress analysis; 4.5 Case studies with scenario analysis; 4.6 Using the Delphi method; 4.7 Stress evaluation through sensitivity analysis; 4.8 Fundamentals of statistical inference; Notes; Chapter 5 Worst case scenarios and drills; 5.1 Introduction; 5.2 Worst cases happen when chance meets unpreparedness; 5.3 A bird's-eye view of worst case analysis

5.4 Impaired claims, credit risk and worst case5.5 Why are worst case drills important?; 5.6 A catastrophe drill undertaken by the International Monetary Fund in 2002; 5.7 The Federal Reserve's 'new bank' and the carry trade; 5.8 The nature of worst case drills is polyvalent; Notes; Chapter 6 Technology strategy for advanced testing; 6.1 Introduction; 6.2 Managing a successful technology effort; 6.3 Innovation and survival of the fittest; 6.4 A phase-shift technology strategy; 6.5 Re-engineering information technology is not an option; it is a 'must'

6.6 Projecting and implementing an enterprise architecture6.7 Strategic planning should account for information technology's deliverables; Notes; Part 2 Stress testing probability of default, loss given default and exposure at default; Chapter 7 Models and procedures for the study of volatility patterns; 7.1 Introduction; 7.2 Volatility defined; 7.3 Keeping volatility in perspective; 7.4 Improving volatility models through heteroschedasticity; 7.5 Procedural insufficiency among financial institutions and individual investors; 7.6 Algorithmic insufficiency: a case study with value at risk

7.7 The volatility of credit ratings: a case study with General Motors and General Motors Acceptance Corporation

The Consultative paper issued by the Basel Committee on Banking Supervision (Basel II) cites the failure of bankers to adequately stress test exposures as a major reason for bad loans. Sample quotes from this crucial document: * ""Banks should take into consideration potential future changes in economic conditions when assessing individual credits and their credit portfolios, and should assess their credit risk exposures under stressful conditions."" * ""The recent disturbances in Asia and Russia illustrate how close linkages among emerging markets under stress conditions and previousl

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