1.

Record Nr.

UNINA9910811449203321

Autore

Avesano Renzo G

Titolo

A new risk indicator and stress testing tool : a multifactor Nth-to-Default CDS basket / / prepared by Renzo G. Avesani, Antonio Garcia Pascal, and Jing Li

Pubbl/distr/stampa

[Washington, D.C.], : International Monetary Fund, c2006

ISBN

1-4623-0541-5

1-4527-9151-1

1-283-51254-8

1-4519-0899-7

9786613824998

Edizione

[1st ed.]

Descrizione fisica

1 online resource (25 p.)

Collana

IMF working paper ; ; WP/06/105

Altri autori (Persone)

PascalAntonio Garcia

LiJing

Soggetti

Risk management

Economic indicators

Lingua di pubblicazione

Inglese

Formato

Materiale a stampa

Livello bibliografico

Monografia

Note generali

"April 2006".

Nota di bibliografia

Includes bibliographical references.

Nota di contenuto

""Contents""; ""I. INTRODUCTION""; ""II. DESCRIPTION OF THE INDICATOR""; ""III. MODEL DESCRIPTION""; ""IV. DATA DESCRIPTION""; ""V. FACTOR ANALYSIS: ESTIMATION RESULTS""; ""VI. COMPUTATION OF THE PROBABILITIES OF DEFAULT""; ""VII. SENSITIVITY ANALYSIS""; ""VIII. STRESS TESTING""; ""IX. CONCLUDING REMARKS""; ""References""

Sommario/riassunto

This paper generalizes a market-based indicator for financial sector surveillance using a multifactor latent structure in the determination of the default probabilities of an nth-todefault credit default swap (CDS) basket of large complex financial institutions (LCFIs). To estimate the multifactor latent structure, we link the market risk (the covariance of the LCFIs' equity) to credit risk (the default probability of the CDS basket) in a coherent manner. In addition, to analyze the response of the probabilities of default to changing macroeconomic conditions, we run a stress test by generating shocks to the latent multifactor structure. The results unveil a rich set of default probability dynamics and help in identifying the most relevant sources of risk. We anticipate



that this approach could be of value to financial supervisors and risk managers alike.