Banking Event Modeling and Simulation in Scenario-Oriented Stress Testing

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)32_Refereed conference paper (with ISBN/ISSN)

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Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Title of host publicationE-Life
Subtitle of host publicationWeb-Enabled Convergence of Commerce, Work, and Social Life
EditorsMichael J. Shaw, Dongsongs Zhang, Wei T. Yue
PublisherSpringer-Verlag Berlin Heidelberg
Pages379-389
Volume108 LNBIP
ISBN (Electronic)9783642298738
ISBN (Print)9783642298721
StatePublished - Feb 2012

Publication series

NameLecture Notes in Business Information Processing
Volume108
ISSN (Print)1865-1348
ISSN (Electronic)1865-1356

Conference

TitleThe Tenth Workshop on E-Business (WEB 2011)
LocationShanghai International Convention Center
PlaceChina
CityShanghai
Period4 December 2011

Abstract

The recent 2008 financial tsunami has made the financial regulators realize the importance of stress testing in banking systems. One of the major challenges in stress testing is to model and calibrate "exceptional but plausible" scenarios in which macroeconomic shocks may cause contagious bank failures that may lead to the breakdown of a banking system. Presently, existing stress testing methods mainly focus on modeling single or multiple risk factors through a "static snapshot" of the banking systems. However, real-world bank crisis scenarios are much more dynamic such that different event occurrence sequences may have different impacts on individual banks and banking systems. For purposes of predicting contagious bank failures in stress testing, we propose the use of event-driven process chains in modeling bank failure scenarios. We refer to this approach as Banking Event-driven Scenario-oriented Stress Testing (or simply the BESST approach). We compare the pros and cons of the BESST approach with two existing approaches in an example scenario. In addition, we conducted a financial simulation based on this example scenario to demonstrate the validity of the BESST approach. © 2012 Springer-Verlag Berlin Heidelberg.

Research Area(s)

  • Event Modeling, Process Modeling, Scenario, Stress Testing

Citation Format(s)

Banking Event Modeling and Simulation in Scenario-Oriented Stress Testing. / Hu, Daning; Zhao, J. Leon; Hua, Zhimin.

E-Life: Web-Enabled Convergence of Commerce, Work, and Social Life. ed. / Michael J. Shaw; Dongsongs Zhang; Wei T. Yue. Vol. 108 LNBIP Springer-Verlag Berlin Heidelberg, 2012. p. 379-389 (Lecture Notes in Business Information Processing; Vol. 108).

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)32_Refereed conference paper (with ISBN/ISSN)