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Partners in Risk & Capital Management

Stress Testing

Evaluation of Company Performance and Financial Position Deterioration Under Stress

Over the last decade, significant progress has been made in the design and implementation of stress testing processes. Stress testing has become an irreplaceable risk management tool providing valuable insight into potential changes of a company’s financial, capital and liquidity positions under unfavourable market and economic conditions. Enhanced stress scenario generation and improved modelling have led to a deeper understanding of company and portfolio behaviour under market stress, enabling more effective strategic portfolio management and improved capital and recovery planning.

Our Approach

Fintegral became involved in stress testing projects shortly after the financial crisis and over the years has developed a comprehensive understanding of stress testing processes. We have developed techniques to overcome typical stress testing challenges – such as the translation of stress scenario narratives into a consistent set of macroeconomic and market parameters, stability and robustness of stress testing models, aggregation of various stress components, lack of available crisis data, etc. We have drawn up our own macroeconomic model building standards and developed a suite of programming procedures that enable us to develop robust macroeconomic models in an efficient way.

Our Experience

  • Design of a firm-wide stress testing framework and implementation of stress testing standards for bottom-up and top-down stress tests
  • Assistance with the parametrisation of stress scenarios of various severities
  • Design and development of model building standards for the implementation of macroeconomic models for stress testing
  • Development and validation of macroeconomic models for various segments of an investment portfolio
  • Review, enhancement and documentation of stress testing models for market risk, operational risk, country risk, pension risk, investment risk, funding risk and business risk
  • Assistance with the performance and documentation of regulatory stress tests – for instance, EBA, CCAR and BoE