Stress Testing: A Review of Key Concepts

Abstract

The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system-wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors.

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