Deconstructing Systemic Risk: A Reverse Stress Testing Approach

The financial sector faces different systemic events. early recognition of these events is a key step to monitor and track possible crises. Three main questions arise related risk, they deal with their quantification, probability occurrence the role contributors. This paper proposes methodology based on reverse stress test exercise shed light questions. Time series cross-section information regarding risk are obtained. Further, an assessment how results could change depending parameters in Gaussian framework undertaken and, finally, small empirical performed.