Stress testing in a SII environment
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Specification of specific scenarios (V)<br />
• The above are examples of specific shocks to consider. There are several others.<br />
The question is always how to <strong>in</strong>tegrate them <strong>in</strong>to the stress test model. Therefore,<br />
market monitor<strong>in</strong>g of specific risk <strong>in</strong>dicators is an important complement to stress<br />
<strong>test<strong>in</strong>g</strong>.<br />
• To be useful, the stress test scenarios need to be severe but plausible.<br />
• If all specified scenarios should be tested at once, they should be <strong>in</strong>ternally<br />
consistent (e.g. mortality and longevity assumptions, development of equity and<br />
bond values).<br />
• Not all shocks are equally relevant.<br />
• NB: <strong>Stress</strong> tests undertaken at the European level cannot take account of national<br />
idiosyncrasies.<br />
INTERNATIONAL MONETARY FUND 27