Stress Testing Market Report - Credit Risk: Default, Migration and Correlation Shocks - October 2012

Oct 26, 2012

This stress test report uses CreditManager to examine the relative stability of sample credit portfolios. In a buy-and-hold context, our analysis suggests that 'book mode' generally produces lower risk figures that are more sensitive to ratings changes and correlation moves; conversely, in a mark-to-market context, 'migration mode' results produce larger risk figures that are less sensitive to ratings. In both test cases, the stresses demonstrate significant increases in capital, in the range of two to three times. Our methodology captures the effect of correlation ‘taking hold’ of portfolio loss figures as credit quality diminishes.