Bank of Spain proposes more efficient stress test method
A Bank of Spain paper published on Friday proposes a new method to analyse multi-period stress scenarios for portfolio credit risk that is more systematic and includes the worst cases when macro stress testing.
The proposed method quantifies the plausibility of scenarios by considering the distance of the stress scenario from an average scenario. For a given level of plausibility, it searches systematically for the most adverse scenario for the given portfolio. The method therefore yields a
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