Commercial Bank Stress Tests Based on Credit Risk

Abstract

Based on the History-Based Stressed PD model which is derived from Merton theory and IRB model which is derived from Basel New Capital Accord, this paper selects six commercial banks to conduct the empirical research of credit risk stress testing. The result indicates that the value-at-risk calculated by IRM model is much higher than History-Based Stressed PD model, because the former is completely based on the theoretical model while the latter takes into consideration of the historical and realistic significance. In practice, this paper suggests to comprehensively consider the measuring results of two models to formulate risk control measures.