Analytical scores for stress scenarios

TL;DR

This paper introduces two analytical scoring methods for stress test scenarios used by CCPs, aiding risk managers in evaluating and comparing scenario sets for better Default Fund sizing.

Contribution

It presents novel analytical methodologies inspired by the Archer-Mouy-Selmi approach for scoring stress scenarios in CCP risk management.

Findings

Two new scoring methodologies are proposed.

Methods help compare and evaluate stress scenarios.

Potential to improve Default Fund sizing accuracy.

Abstract

In this work, inspired by the Archer-Mouy-Selmi approach, we present two methodologies for scoring the stress test scenarios used by CCPs for sizing their Default Funds. These methodologies can be used by risk managers to compare different sets of scenarios and could be particularly useful when evaluating the relevance of adding new scenarios to a pre-existing set.