Stress-Testing in RiskManager: Contemplating a Eurozone Breakup - February 2012

Jul 13, 2012

Since the beginning of the Eurozone crisis in 2009, it is apparent that structural issues persist, particularly in the European peripheral economies. Stress testing plays a pivotal role in the risk management process. This paper shows how a well-specified scenario can be used to understand and mitigate contagion effects resulting from a hypothetical sovereign default in Greece, Spain or Italy. Global asset and factor representative portfolios are stressed to reflect the impact of default on countries, sectors, and industries.