Nematrian Reference Library
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| Reference | Title | Link |
| Kwiatkowski, J. and Rebonato, R. (2010) | A coherent aggregation framework for stress testing and scenario analysis | here |
Abstract (partial)
"We present a methodology to aggregate in a coherent manner conditional stress losses in a trading or banking book. The approach bypasses the specification of unconditional probabilities of the individual stress events, and ensures via a Linear Programming approach that the (subjective or frequentist) conditional probabilities chosen by the risk manager are internally consistent. The admissibility requirement greatly reduces the degree of arbitrariness in the conditional probability matrix if this is assigned subjectively." |
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