Stress testing incorporating causal dependency [27]

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Bullet points include: Bayesian nets provide a route to a possibly ‘better’ way of estimating joint probabilities and hence estimating VaR, TVaR etc. How can we also use them to advantage when selecting stress tests? Stress testing, like portfolio construction, can be ‘top down’ or ‘bottom up’ Difference relates to how much we want to focus on generic exposures versus ones that particularly target exposures in our portfolio

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