Stress testing has become an important topic in retail lending since the introduction of the new Basel II guidelines. The present work uses a scenario-based forecasting approach developed explicitly for retail lending in order to provide a suitable stress testing approach. We first decompose the...

Stress testing has become an important topic in retail lending sincethe introduction of the new Basel II guidelines. The present work uses ascenario-based forecasting approach developed explicitly for retail lendingin order to provide a suitable stress testing approach. We first decomposethe...