Introduction to Stress Testing
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This course surveys the tools and techniques employed in conducting stress tests.
This course is a component of the Risk Management Professional Certificate.
- Basic MS Excel skills
- Basic probability and statistics
- Basic knowledge of financial securities and markets
MODULE 1: STRESS TESTING CONCEPTS
- Scenario analysis: Historical vs. hypothetical
- Algorithmic / mechanical stress tests
- Factor push
- Maximum loss
- History of stress testing at financial institutions
- Reverse stress testing
- Augmenting Value at Risk with stress tests
MODULE 2: US REGULATORY STRESS TESTS
- 2009 Supervisory Capital Assessment Program (SCAP)
- Dodd-Frank Act Stress Test (DFAST) and Federal Reserve Comprehensive Capital Analysis and Review (CCAR)
- Applying scenarios – from scenarios to the capital ratios
- Scope of work
- Implications for capital and the business model of a financial intermediary
- Critique: Do the CCAR/DFAST stress tests reduce risk?
MODULE 3: REGULATORY STRESS TESTING IN OTHER JURISDICTIONS
- UK: Bank of England (PRA) stress tests
- EU: European Banking Authority (EBA) stress tests
- Japan, Hong Kong, Sweden, Ireland
** WHAT YOU'LL LEARN**
- Describe common approaches to stress testing
- Explain challenges in designing stress test scenarios, including the problem of coherence in modeling risk factors
- Describe the practical problems associated with conducting comprehensive stress tests for large financial intermediaries.
- Define reverse stress testing and compare it to conventional stress tests
Who should attend
- Risk managers analysts
- ALCO members
- and bank examiners