IDEAS home Printed from https://ideas.repec.org/p/ris/cafral/022297.html

Stress Testing Of Firm Level Credit Risk

Author

Listed:
  • Kriti Mahajan

    (Centre for Advanced Financial Research and Learning (CAFRAL))

  • Manjusha Senapati

    (Reserve Bank of India)

  • Anand Srinivasan

    (Centre for Advanced Financial Research and Learning (CAFRAL) and National University of Singapore (NUS))

Abstract

This paper develops a method to estimate vulnerability of publicly traded firms to stress events using a bottom up framework. As an illustration of the method, we apply this method to publicly traded firms in India. Specifically, a given firm’s exposure to overall market risk (measured using NIFTY 500 returns) and the Indian market’s overall exposure to global market, forex and interest rate risk is used to estimate the sensitivity of firm level probabilities of default to changes in global market, foreign exchange rates and/or interest rates. Using this stress test methodology, the paper illustrates the impact of stress scenarios on corporate vulnerability - using the 2008 financial crisis and the 2013 taper tantrum as benchmark cases. The above stress test framework can be easily implemented for any combination of forex, market and interest rates scenarios to examine the impact of stress events on the probabilities of default of their obligors.

Suggested Citation

  • Kriti Mahajan & Manjusha Senapati & Anand Srinivasan, 2020. "Stress Testing Of Firm Level Credit Risk," Working Papers 022297, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022297
    as

    Download full text from publisher

    File URL: https://www.cafral.org.in/sfControl/content/Speech/57202083227PMstressJan312020.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:cafral:022297. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vijayshree (email available below). General contact details of provider: https://edirc.repec.org/data/cafrain.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.