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SUMMARY:Scenario Sets\, Risk Measures and Stress Testing Part 1: Theory - 
 McNeil\, A (Heriot-Watt University)
DTSTART:20141126T110000Z
DTEND:20141126T120000Z
UID:TALK56361@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:We examine the relationship between multivariate scenarios set
 s and risk measures. Our interest is motivated by the use of scenario sets
  in the stress testing of banks and insurance companies whose portfolio va
 lues and solvency are dependent on changes in underlying financial risk fa
 ctors. Although regulators suggest that financial institutions should cons
 ider extreme but plausible scenarios\, there is no clear guidance on exact
 ly how this should be done. We explain the connection between sets based o
 n the notion of half-space depth (HD) and the Value-at-Risk risk measure. 
 We then introduce general depth concepts related to coherent risk measures
  and show how these lead to scenario sets based on\, for example\, the exp
 ectile or the expected shortfall risk measure. The boundaries of these set
 s also have interesting interpretations in terms of capital allocation. Fi
 nally we explain how the sets might be used in ordinary (forward) stress t
 esting and so-called reverse stress testing.\n
LOCATION:Seminar Room 2\, Newton Institute Gatehouse
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