Skip to content

Stress tests: Objectives, challenges and modelling choices

by Mathias Drehmann
Economic Review ()


Stress tests have become an integral tool for banks’ risk management practices as well as for financial stability assessments by central banks. But there has been no debate about the objectives of stress tests, even though an understanding of those is essential when building and evaluating stress testing models. This paper identifies three main objectives: validation, decision making and communication. And it shows that different objectives lead to different and possibly conflicting priorities for model design. In the light of this discussion modelling choices are assessed and two main challenges for stress testing models are discussed: data limitations and the endogeneity of risk.

Cite this document (BETA)

Readership Statistics

18 Readers on Mendeley
by Discipline
44% Economics, Econometrics and Finance
28% Business, Management and Accounting
11% Computer Science
by Academic Status
22% Student > Ph. D. Student
22% Other
17% Student > Master
by Country
6% Brazil

Sign up today - FREE

Mendeley saves you time finding and organizing research. Learn more

  • All your research in one place
  • Add and import papers easily
  • Access it anywhere, anytime

Start using Mendeley in seconds!

Sign up & Download

Already have an account? Sign in