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Some enhancements in response to the changing environment

  • Few adjustments to limit framework: approach has always been concentrated on the tail

events, not on statistical models

  • Main changes as follows:

    • Dec 07: Replacement of ‘Equity Market Driver’ Macro-Economic Linkages (MEL) scenario with a more broad ‘Market Contagion’ MEL scenario. The new scenario included a much larger range of market movements. For example, corporate margin shocks, hedge fund net asset value shocks and increased equity correlations

    • Early 09: Ratings based credit spread shocks were replaced across all scenarios by relative shocks based on current spreads. In addition, direct price shocks were introduced for securitised products and distressed debt

    • Jan 10: ‘Market Contagion’ MEL scenario was updated to reflect the observation that Emerging Market FX rates and bond prices can experience large highly correlated downward movements

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