First let me highlight some considerations regarding the statistical risk models before turning my attention to the concept of stress-testing. A toolbox of complementary statistical risk models We use statistical risk measures such as value-at-risk, expected loss or expected shortfall to assess the risk facing an institution.
However, as I’m sure you are aware, statistical risk models have been subject to strong criticism in recent times since the crisis has brought the shortcomings of some of these models to light. Nevertheless, this does not signal the death toll for such models.