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A review of Basel II and Basel III supervisory regulation in the area of stress testing credit risk. Summary of methods and aspects used in definition of stress scenarios. Two case studies on hypothetical portfolios are presented. A macroeconomic model for Loss (= PD x LGD) predection depending on GDP time series is developed. As for the second step national bank's (CNB) stressed scenario of GDP evolvement is taken to influence future stressed development of Loss on the portfolio.
The second case study works with a method of stressing transition probability matrix among pools of credit ratings.