Ontology-based scenario modeling and analysis for bank stress testing

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

8 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)81-94
Journal / PublicationDecision Support Systems
Volume63
StatePublished - Jul 2014

Abstract

The 2008 banking crisis demonstrated that there is a lack of effective methods for modeling and analyzing "exceptional but plausible" risk scenarios in bank stress testing. Existing stress testing practices mainly focus on modeling probability-based risk factors and events in banking systems using historical data. Rare (low probability) risk events that can cause financial crises in banking systems, such as the bankruptcy of Lehman Brothers, are largely ignored due to the lack of appropriate modeling and analysis methods. To address this problem, we propose an approach called Banking Event-driven Scenario-oriented Stress Testing (or simply, BESST) which has two main components: 1) an ontology-based event-driven scenario model (OESM), and 2) two analysis methods based on OESM for scenario recommendation and plausibility checking. The proposed BESST approach provides bank stress testing stakeholders an effective method for modeling and analyzing financial crisis scenarios that are rare but often have significant consequences. © 2013 Elsevier B.V.

Research Area(s)

  • Bank stress testing, Ontology, Plausibility check, Scenario modeling

Citation Format(s)

Ontology-based scenario modeling and analysis for bank stress testing. / Hu, Daning; Yan, Jiaqi; Zhao, J. Leon; Hua, Zhimin.

In: Decision Support Systems, Vol. 63, 07.2014, p. 81-94.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review