Stress testing / Liquidity and funding risk [28]

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Bullet points include: Can use relative entropy orientated techniques as per Kemp (2011) to identify the ‘closest’ feasible correlation matrix Relative entropy here allows us to describe mathematically the notion of ‘close’ More credibility may be given to some inputs (e.g. more ‘reliable’ risk managers / experts) Mathematics is beyond the scope of this course but may be covered in Further ERM course Same types of technique can also be used to blend market implied data with data from other sources, e.g. history or expert judgement

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