Stress testing
BrainMatics has extensive experience and relevant research background for stress testing financial portfolios for insurance and banking organizations – with experience in stress testing in European (Germany, Italy and UK) and APAC (Japan, Korea, Thailand).
According to the bank for international settlement “stress testing” is defined as “a generic term describing various techniques used by financial firms to gauge their potential vulnerability to exceptional but plausible event”.
A general framework can be designed for simulating the value of a financial portfolio over time. The main idea is to create a macro-economic model which simulates the long-term behavior of the economy, and use statistical models to generate the behavior at intermediate time points. This is highly applicable for credit and investment portfolios due to its transparent and intuitive nature of analysis.
The main components of a portfolio stress test incorporate the following
- Risk Factor definition
- Macro factor/model definition
- Scenario/Shock generation
- Generating distributions for the various scenarios/shocks
BM Stress Testing Framework (BMS Engine)
