Forum

June 17, 2011 - RiskMinds conference - Notes from presentation  “A Foundation For Stress Testing” by Dave Williams, CFA, Managing Director,  Solutions Architects,  S&P Valuation and Risk Strategies

“... Factoring In Macroeconomic Events

Calculate macroeconomic correlations to fundamental data

-  Understand the correlations between fundamental financial data and a set of macroeconomic variables, commodity prices, FX and interest rates

Monitor those correlations for convergence/divergence

-   Look for warning signs such as increasing correlations

Use the correlations to forecast fundamentals and feed models

-   Use the correlations to forecast financials to feed a range of macro and fundamentally based credit models, equity valuation models, so on

Perform economic shocks and stress testing

-   Shock the economic, commodity and rate variables to provide a foundational stress testing capability across those models...”