Risk management is especially concerned with catastrophic events such as stock market crashes collapses of the bond market or foreign exchange crises. Risk management tools such as value at risk models have been developed both by professionnals and academics to evalue the risk of market positions. As most of the models consider " normal " market conditions, they are completed by stress testing studies focusing on catastrophic events. This paper proposes a rigorous method based on extreme value theory to definie catastrophe scenarios used in stress testing methods. The stress value for a risk factor is computed for a given probability, and inversely, a probability is computed for a given stress value. An applications is provided for foreign exchange markets.
LONGIN, F. (1997). Stress Testing : Application de la théorie des valeurs extrêmes aux marchés des changes. ESSEC Business School.