Enterprise Risk Management Slides

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Stress testing / Liquidity and funding risk [26]

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Bullet points include: Suppose 4 scenarios, A, B, C, D and risk manager(s) supply the following conditional probabilities (where Probability of A given D = Pr(A|D), say, is 0.4 However, we then have Pr(C|A) + Pr(D|A) = 1.1 but this is infeasible since C and D are exclusive events (as Pr(C|D) = Pr(D|C) = 0) hence Pr((C or D)|A) = Pr(C|A) + Pr(D|A) and so > 1

Bullet points include: Suppose 4 scenarios, A, B, C, D and risk manager(s) supply the following conditional probabilities (where Probability of A given D = Pr(A|D), say, is 0.4 However, we then have Pr(C|A) + Pr(D|A) = 1.1 but this is infeasible since C and D are exclusive events (as Pr(C|D) = Pr(D|C) = 0) hence Pr((C or D)|A) = Pr(C|A) + Pr(D|A) and so > 1

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