Factor Model for Stress-testing with a Contingent Claims Model of the Chilean Banking System, Issues 2008-2089

Front Cover
International Monetary Fund, 2008 - Banks and banking - 37 pages
This paper derives risk indicators for the major Chilean banks based on contingent claims analysis, an extension of Black-Scholes-Merton option-pricing theory. These risk indicators are clearly tied to macroeconomic and financial developments in Chile and outside, but bank responses are highly heterogeneous. To reduce the number of variables linked to the banks' risk to a tractable number, we apply principal component analysis. Vector autoregressions of risk indicators with the most significant factors show strong ties from financial markets and regional developments. Impulse response functions from these factors are derived, which allow for scenario testing. The scenarios derived in the paper illustrate how the magnitude and persistence of responses of bank credit risk can vary across banks in the system.
 

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

Introduction
3
Estimated RiskNeutral Default Probabilities for Bank Under Varying
9
Significant Factors Output from PCA
18
Shock to Financials Factor Comparable to 1998
24
Annex
34
Copyright

Other editions - View all

Common terms and phrases

Popular passages

Page 32 - New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability...

Bibliographic information