Stress Testing and Risk Integration in Banks - 1st Edition - ISBN: 9780128035900, 9780128036112

Stress Testing and Risk Integration in Banks

1st Edition

A Statistical Framework and Practical Software Guide (in Matlab and R)

Authors: Tiziano Bellini
eBook ISBN: 9780128036112
Hardcover ISBN: 9780128035900
Imprint: Academic Press
Published Date: 2nd November 2016
Page Count: 316
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Stress Testing and Risk Integration in Banks provides a comprehensive view of the risk management activity by means of the stress testing process. An introduction to multivariate time series modeling paves the way to scenario analysis in order to assess a bank resilience against adverse macroeconomic conditions. Assets and liabilities are jointly studied to highlight the key issues that a risk manager needs to face. A multi-national bank prototype is used all over the book for diving into market, credit, and operational stress testing.

Interest rate, liquidity and other major risks are also studied together with the former to outline how to implement a fully integrated risk management toolkit. Examples, business cases, and exercises worked in Matlab and R facilitate readers to develop their own models and methodologies.

Key Features

  • Provides a rigorous statistical framework for modeling stress test in line with U.S. Federal Reserve FRB CCAR (Comprehensive Capital Analysis Review), U.K. PRA (Prudential Regulatory Authority), EBA (European Baning Authorithy) and comply with Basel Accord requirements
  • Follows an integrated bottom-up approach central in the most advanced risk modelling practice
  • Provides numerous sample codes in Matlab and R


Graduate students and professionals worldwide, students specializing in banking, and bank regulation professionals

Table of Contents

  • Dedication
  • Tiziano Bellini's Biography
  • Preface
  • Acknowledgments
  • Chapter 1: Introduction to Stress Testing and Risk Integration
    • Abstract
    • 1.1 Antidote to the Crisis
    • 1.2 Stress Testing, Risk Integration, and Reverse Stress Testing
    • 1.3 Book Structure at a Glance
    • 1.4 Summary
  • Chapter 2: Macroeconomic Scenario Analysis from a Bank Perspective
    • Abstract
    • Key Abbreviations and Symbols
    • 2.1 Introduction
    • 2.2 Autoregression and Moving-Average Modeling
    • 2.3 Vector Autoregression and Vector Error-Correction Modeling
    • 2.4 Global Vector Autoregression Modeling
    • 2.5 Stress Testing Scenario
    • 2.6 Summary
    • Suggestions for Further Reading
    • Appendix. Robust Vector Error Correction Model: A Forward Search Approach
    • Exercises
  • Chapter 3: Asset and Liability Management, and Value at Risk
    • Abstract
    • Key Abbreviations and Symbols
    • 3.1 Introduction
    • 3.2 Margin at Risk
    • 3.3 Value at Risk
    • 3.4 Liquidity Analysis
    • 3.5 Summary
    • Suggestions for Further Reading
    • Appendix A. Kalman Filter for Affine Term Structure Models
    • Appendix B. Robust Kalman Filter: A Forward Search Approach to Estimate Affine Term Structure Models
    • Exercises
  • Chapter 4: Portfolio Credit Risk Modeling
    • Abstract
    • Key Abbreviations and Symbols
    • 4.1 Introduction
    • 4.2 Credit Portfolio Modeling
    • 4.3 Credit Risk-Weighted Assets
    • 4.4 How to Link Credit Risk Parameters and Macroeconomic Variables
    • 4.5 Portfolio Credit Risk Stress Testing
    • 4.6 Summary
    • Suggestions for Further Reading
    • Appendix A: Default Probability Estimation via Logit Regression
    • Appendix B: The Forward Search for Elliptical Copulas
    • Exercises
  • Chapter 5: Balance Sheet, and Profit and Loss Stress Testing Projections
    • Abstract
    • 5.1 Introduction
    • 5.2 Balance Sheet Projection
    • 5.3 Profit and Loss Projection
    • 5.4 Conduct and Operational Risk Stress Testing
    • 5.5 Summary
    • Suggestions for Further Reading
    • Exercises
  • Chapter 6: Regulatory Capital, RWA, Leverage, and Liquidity Requirements Under Stress
    • Abstract
    • 6.1 Introduction
    • 6.2 Regulatory Capital
    • 6.3 Risk-Weighted Assets and Capital Ratios
    • 6.4 Leverage and Liquidity Ratios
    • 6.5 Summary
    • Suggestions for Further Reading
    • Exercises
  • Chapter 7: Risk Integration
    • Abstract
    • Key Abbreviations and Symbols
    • 7.1 Introduction
    • 7.2 Top-Down Risk Integration Modeling
    • 7.3 Bottom-Up Economic Capital Integration Modeling
    • 7.4 Bottom-Up Liquidity Integration Modeling
    • 7.5 Summary
    • Suggestions for Further Reading
    • Exercises
  • Chapter 8: Reverse Stress Testing
    • Abstract
    • Key Abbreviations and Symbols
    • 8.1 Introduction
    • 8.2 Reverse Stress Testing Objective Function
    • 8.3 Integrated Risk Modeling and Vulnerability Thresholds
    • 8.4 Bank-Specific Disastrous Event Fact Finding
    • 8.5 Exploration of Ruinous Macroeconomic Scenarios
    • 8.6 Summary
    • Suggestions for Further Reading
    • Exercises
  • Index


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About the Author

Tiziano Bellini

Tiziano Bellini received his Ph.D. in Statistics from the Università degli Studi di Milano after being visiting Ph.D. student at the London School of Economics. He gained a wide risk management experience across Europe, in London and New York.He currently holds a Senior Management position at EY Financial Advisory Services in London. Previously he worked at HSBC headquarter, Prometeia and for other Italian leading Companies. He is also a guest Lecturer at the London School of Economics. Formerly, he served as Lecturer at the Università degli Studi di Bologna and Università degli Studi di Parma. He has published in European Journal of Operational Research, Computational Statistics and Data Analysis, and other top-reviewed Journals. He has given numerous training courses, seminars and conference presentations on statistics, risk management and quantitative methods.

Affiliations and Expertise

EY Financial Advisory Services, London, UK


"Stress Testing and Risk Integration in Banks is a book that both finance academics and risk management experts have long sought. It bridges a substantial gap between risk theory and banking practice by paving the way for sound quantitative approaches in the area." --Niklas F Wagner, University of Passau

"This book is highly practical and rigorous in its clear and refreshing coverage of current risk issues faced by global banks. Combining Matlab/R code, relevant exercises and business cases, it is comprehensive in scope and operationally highly relevant." --Gary van Vuuren, Aviva Investors, London and North West University, South Africa

"Stress Testing and Risk Integration in Banks reveals the important connections between risk management and stress testing in the banking industry. These days, in which the industry is in the verge of its deepest change in decades, this book provides a much-needed framework to apply stress testing in practical terms." --Juan Ignacio Peña, Universidad Carlos III

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