Generating Yield Curve Stress-Scenarios

Arthur Charpentier (1) , Christophe Villa (1)

1 CREM - Centre de recherche en économie et management

Several authors have proposed to combine movements in princi- pal components to generate scenarios of "large" historical changes in term structures, i.e. stress-scenarios. This approach, however, has at least two shortcommings. This paper answers at these two problems and proposes a general two-steps procedure. The …rst step relies on …tting the discount bond yields and the second step relies on estimating statistically independent variables. Using the distribution of independent components identi…ed, we combine their movements to produce stress-scenarios by specifying separate "shocks" in each of the directions given by the three independent compo- nents. We apply our methodology to the U.S. term structure of interest rates over the last three decades.

Mots clés: Term structure; Yield curve; IRR; Stress-Testing; Scenario analysis; Principal Component Analysis; Independant Component Analy- sis.; Independant Component Analy- sis

Domaines: Statistiques [math.ST]; Théorie [stat.TH]; Economies et finances

Arthur Charpentier, Christophe Villa. Generating Yield Curve Stress-Scenarios. 2010. ⟨hal-00550582⟩