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Integrating Solvency and Liquidity Stress Tests
The Use of Markov Regime-Switching Models

by Fei Han and Mindaugas Leika

Series:Working Paper No. 19/250
ISBN 9781513519791
Code: #WPIEA2019250

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
41 pages
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The paper presents a framework to integrate liquidity and solvency stress tests. An empirical study based on European bond trading data finds that asset sales haircuts depend on the total amount of assets sold and general liquidity conditions in the market. To account for variations in market liquidity, the study uses Markov regime-switching models and links haircuts with market volatility and the amount of securities sold by banks. The framework is accompanied by a Matlab program and an Excel-based tool, which allow the calculations to be replicated for any type of traded security and to be used for liquidity and solvency stress testing.
Integrating Solvency and Liquidity Stress Tests
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 126346 Added: 2019.11.22