Bundesbank paper examines stress-test models
Authors present a method to investigate how well stress tests predict bank failures
A working paper published by the Deutsche Bundesbank presents a method to examine how well stress-test models predict whether specific banks may fail.
In Backtesting macro-prudential stress tests, Amanah Ramadiah, Daniel Fricke and Fabio Caccioli outline a generalised fire-sale stress-test model. They say their model “captures a wide range of behavioural assumptions with regards to banks’ liquidation dynamics under stress”.
Their model is based on network of common asset holdings using 2007
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