Scenario Matching for Credit Dependence Stress Tests: Temporal correlation constraints and empirical risk bounds

We couple two sets of simulated market and credit paths by minimizing absolute temporal-correlation error relative to a prescribed target. Each market path receives exactly one credit path, preserving both empirical distributions of complete scenarios. A perfect-matching test identifies whether a uniform correlation-error tolerance is feasible and determines its smallest attainable value. Further assignments give exact empirical mean-loss and exceedance-probability bounds; quantile bounds follow by binary search over eligible loss thresholds. A synthetic bond-forward credit stress test illustrates the method. The experiments report matching precision, empirical score tails and exposure-grid error, and measure matching and mean-loss computation. The method is independent of the scenario generator and provides a reproducible way to examine dependence assumptions in existing risk engines. Tail measures concern default-probability-weighted credit scores. Accompanying reproducibility package (Python code, synthetic scenario libraries, permutations, and benchmarks) is attached in the ZIP archive.

Authors

Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-10-15
DOI
https://doi.org/10.5281/zenodo.23405058
Primary Topic
Credit Risk and Financial Regulations
Type
article
Field-Weighted Citation Impact
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article

Scenario Matching for Credit Dependence Stress Tests: Temporal correlation constraints and empirical risk bounds

Naoufal Nifa
Zenodo (CERN European Organization for Nuclear Research)
Credit Risk and Financial Regulations
article

Scenario Matching for Credit Dependence Stress Tests: Temporal correlation constraints and empirical risk bounds

Naoufal Nifa
article en

Abstract

We couple two sets of simulated market and credit paths by minimizing absolute temporal-correlation error relative to a prescribed target. Each market path receives exactly one credit path, preserving both empirical distributions of complete scenarios. A perfect-matching test identifies whether a uniform correlation-error tolerance is feasible and determines its smallest attainable value. Further assignments give exact empirical mean-loss and exceedance-probability bounds; quantile bounds follow by binary search over eligible loss thresholds. A synthetic bond-forward credit stress test illustrates the method. The experiments report matching precision, empirical score tails and exposure-grid error, and measure matching and mean-loss computation. The method is independent of the scenario generator and provides a reproducible way to examine dependence assumptions in existing risk engines. Tail measures concern default-probability-weighted credit scores. Accompanying reproducibility package (Python code, synthetic scenario libraries, permutations, and benchmarks) is attached in the ZIP archive.

Zenodo (CERN European Organization for Nuclear Research)
Openalex Percentile: Top 8%
Credit Risk and Financial Regulations
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