Data Management

Stress Testing Credit Risk: Is The Czech Republic Different From Germany?

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Executive Summary

This paper deals with credit risk modelling and stress testing within the context of a Merton-type one-factor model. The authors analyze the corporate and household sectors of the Czech Republic and Germany to find determining variables of credit risk in both countries. They find that a set of similar variables explains corporate credit risk in both countries despite substantial differences in the default rate pattern. This does not apply to households, where further research seems to be necessary. Next, they establish a framework for the stress testing of credit risk.

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