In the Basel II era, management of interest rate risk in the banking book has become significant. In the first study of its kind, we develop a simulation based driver-driven approach to estimate the impact of interest rate volatility on the networth of Indian banks during the period 2002-2004....

The subprime crisis has reminded us that effective stress tests should not only combine subjective scenarios with historical data, but also be probabilistic. In this paper, we combine three hypothetical shocks, of varying degrees, with more than six years of daily data on USD-INR and Euro-INR....