Working Papers

2015-13 | September 2015

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Robust Stress Testing

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Despite the general consensus that stress testing has been useful in financial and macro-prudential regulation, test techniques are still being debated. This paper proposes using robust forecasting analysis to construct adverse scenarios using a benchmark model that includes a modified worst-case distribution. These scenarios give regulators a way to identify vulnerabilities, while acknowledging that models may be misspecified in unknown ways.

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Article Citation

Bidder, Rhys, and Andrew McKenna. 2015. "Robust Stress Testing," Federal Reserve Bank of San Francisco Working Paper 2015-13. Available at https://doi.org/10.24148/wp2015-13