We investigate the effect of model specification on the aggregation of (correlated) market and credit risk. We focus on the functional form linking systematic credit risk drivers to default probabilities. Examples include the normal based probit link function for typical structural models, or...

We compute joint sovereign default probabilities as coincident systemic risk indicators. Instead of commonly used CDS spreads, we use government bond yield data which provide a longer data history. We show that for the more recent sample period 2008-2015, joint default probabilities based on CDS...

In the aftermath of the financial crisis, banks have been subjected to a sequence of stress tests to measure system stability. Such tests are formulated in terms of adverse economic scenarios rather than in terms of systematic default rate increases.This suggests that macroeconomic conditions...