Satellite Model
From Open Risk Manual
Definition
A Satellite Model denotes a Risk Model that is used to translate a given Macro Economic Scenario into Risk Parameters at the firm level
Context
The concept of distinct satellite risk models emerged in the context of post-crisis large scale Stress Testing activities organized by banking regulators worldwide. A key design of these stress testing exercises is that a set of common scenarios are specified as applying to all firms and those are then translated into specific firm models using proprietary firm specific data.[1]
Types of Satellite Models
- Credit Risk
- Probability of default (PD) models
- Loss given default (LGD) models
- Interest Rate Risk
- Net Interest Margin
- Fee's and Commission Income
Issues and Challenges
- Market and Operational Risk are not easy to integrate into a macro-economic scenario stress testing framework
References
- ↑ ECB, Stress-Test Analytics for Macroprudential Purposes in the euro area
