Stress testing in a SII environment
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Specification of specific scenarios (III)<br />
Risk factor Explanation Examples<br />
Interest rate risk<br />
Equity risk<br />
Real estate risk<br />
FX-risk<br />
Credit risk and<br />
counterparty<br />
default risk<br />
Economic value change of <strong>in</strong>terest rate sensitive<br />
assets and liabilities, measured by a shift <strong>in</strong> the yield<br />
curve (parallel, flatten<strong>in</strong>g, steepen<strong>in</strong>g)<br />
Need to consider different shocks for different types<br />
of equity. Def<strong>in</strong>ed as % loss <strong>in</strong> market value<br />
Similar to equity risk. May need to consider,<br />
differentiation between residential commercial real<br />
estate<br />
Negative shocks to net open FX-positions and/or FX<br />
denom<strong>in</strong>ated assets and liabilities<br />
Market value changes of fixed <strong>in</strong>come <strong>in</strong>struments,<br />
<strong>in</strong>crease of counterparty risk<br />
+/- 200bps parallel shift<br />
-20% fall <strong>in</strong> value<br />
+/- 20%<br />
Increase of credit spread by 50%,<br />
downgrade counterparties, failure<br />
of large counterparty<br />
For more detailed examples refer to: Jobst,<br />
Sugimoto, Broszeit (2014), Macroprudential<br />
<strong>in</strong>surance stress <strong>test<strong>in</strong>g</strong><br />
INTERNATIONAL MONETARY FUND 25
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