01921cas a2200253 a 4500 AALejournalIMF004965 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451869507 1018-5941 BD-DhAAL BD-DhAAL Gray, Dale. Factor Model for Stress-testing with a Contingent Claims Model of the Chilean Banking System / Dale Gray, James Walsh. Washington, D.C. : International Monetary Fund, 2008. 1 online resource (37 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper derives risk indicators for the major Chilean banks based on contingent claims analysis, an extension of Black-Scholes-Merton option-pricing theory. These risk indicators are clearly tied to macroeconomic and financial developments in Chile and outside, but bank responses are highly heterogeneous. To reduce the number of variables linked to the banks' risk to a tractable number, we apply principal component analysis. Vector autoregressions of risk indicators with the most significant factors show strong ties from financial markets and regional developments. Impulse response functions from these factors are derived, which allow for scenario testing. The scenarios derived in the paper illustrate how the magnitude and persistence of responses of bank credit risk can vary across banks in the system. Mode of access: Internet Walsh, James. IMF Working Papers; Working Paper ; No. 2008/089 Full text available on IMF http://elibrary.imf.org/view/journals/001/2008/089/001.2008.issue-089-en.xml IMF e-Library