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Mapping swap rate projections on bond yields considering cointegration: an example for the use of neural networks in stress testing exercises

Author

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  • Nikolas Stege

    (Leibniz University Hannover
    Ernst & Young GmbH)

  • Christoph Wegener

    (Leuphana University Lüneburg)

  • Tobias Basse

    (Nord/LB)

  • Frederik Kunze

    (Nord/LB)

Abstract

This paper discusses the application of techniques of business analytics in the banking industry examining stress tests in the context of financial risk management. We focus on the use of neural networks in combination with techniques of cointegration analysis to map swap rate projections derived from given scenarios (e.g., a certain stress scenario from the EBA/ECB 2016 EU-wide stress test) on other relevant interest rates in order to ensure that contingent projections for these time series are produced and used in the process of stress testing.

Suggested Citation

  • Nikolas Stege & Christoph Wegener & Tobias Basse & Frederik Kunze, 2021. "Mapping swap rate projections on bond yields considering cointegration: an example for the use of neural networks in stress testing exercises," Annals of Operations Research, Springer, vol. 297(1), pages 309-321, February.
    • Handle: RePEc:spr:annopr:v:297:y:2021:i:1:d:10.1007_s10479-020-03762-x
    DOI: 10.1007/s10479-020-03762-x
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