Abstract
The last credit and financial crisis has rendered credit risk stress tests a major risk management topic for financial authorities and banks. However, implementing a reasonable stress test with useful results is still considered as difficult and this in turn implies problems of acceptance in the financial industry. One reason for these difficulties seems to be the many degrees of freedom associated with the selection of scenarios. Another reason may be that no “best practice” guidelines do exist. This article gives a survey on credit risk stress tests. We want to clarify important terms and set a formal foundation. Furthermore, we want to distinguish different types of stress tests, their objectives, strengths and weaknesses and explain different methodologies.
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