Axtria Insights

Axtria Insights


Axtria Conducted Stress Testing For Basel Credit Risk Models Within A Well Defined Stress Testing Framework


A leading US credit card issuer wanted to conduct stress tests on its portfolio to determine impact on model performance and RWAs


A dedicated team of 6 specialists conducted thorough stress testing of portfolio encompassing risk driver stress testing, default rate stress testing and scenario stress testing (macro-economic)

Identify Stress Period
  • Stress Period Identification: Plotted historical default rates for the portfolio
  • Identified Peak Historical Default Rate as stress period
  • For all segments identify top model predictors

Stress Independent Variables
  • Stress factor computation: For all predictors index them against risk* grades as of the stress period
  • For all such grades (without changing grade bounds) create index as of the “scoring” month
  • For each grade-variable cell compute the stress factor, floor it to 1
  • Stress variable creation: Apply this factor to all independent variables as of scoring month at segment – risk grade level

RWA and Model Performance
  • Model Performance: Score the model using stressed model variables
  • Compute Gini, K-S, and other metrics to determine model performance, Characteristic’s analysis
  • Compute RWA for stressed capital requirement and comparison with economic capital

stress testing basel methods


  • Conducted stress tests within 3 months’ time frame for a single portfolio
  • Around 16 segment PD model, 4 segment LGD model, and 6 segment EAD model
  • Led to enhanced understanding of model strength and predictive power
  • RWA computation report for various scenarios provided for benchmarking and business use