Title: Stress test scenario : eurozone meltdown
Authors : Kelly, Scott
Chaplin, Andrew
Coburn, Andrew
Copic, Jennifer
Evan, Tamara
Neduv, Eugene
Ralph, Daniel
Ruffle, Simon
Schwendner, Peter
Skelton, Andrew
Yeo, Jaclyn Zhiyi
Extent : 32
Publisher / Ed. Institution : Cambridge Centre for Risk Studies
Publisher / Ed. Institution: Cambridge
Issue Date: 1-Dec-2015
License (according to publishing contract) : Licence according to publishing contract
Language : English
Subject (DDC) : 332: Financial economics
Abstract: Sovereign default is a failure or refusal by a country & government to make a repayment of national debts. Consequences include devaluation of the principal, as well as loss of yield from the bond. This report explores the impact of unexpected devaluation of fixed income assets resulting from a cascade of sovereign debt devaluations caused by the sequential exit of countries from a currency union. Such devaluations can have a similar financial effect as defaults which, if occurring in what are conventionally regarded as high quality, low risk investments, from one of our four Financial Catastrophe scenarios. Scenarios more generally can be used to cover the spectrum of extreme shocks, such as those proposed in the Cambridge Taxonomy of Threats, which encompasses five classes of business risk. A suite of scenarios is a basis for a global enterprise to stress test itself and improve its resilience. In this scenario political pressures force a bloc of European countries into a cascade of exits from the currency union. The speed and rapid incidence of multiple countries exiting is the most significant dimension of the scenario. The exit from the Euro spreads by contagion of similar political and economic issues across a number of countries and affects other economies that are typically thought of as being core countries of the Eurozone. These problematic political drivers might still endanger the currency union, although the pure financial market risks now seem to be under control as a powerful rescue architecture has been set up since 2011.
Departement: School of Management and Law
Organisational Unit: Institute of Wealth and Asset Management (IWA)
Publication type: Working Paper – Expertise – Study
URI: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/risk/downloads/crs-eurozone-meltdown-financial-catastrophe.pdf
https://digitalcollection.zhaw.ch/handle/11475/8382
Published as part of the ZHAW project : European government bond dynamics and stability policies: taming contagion risks
Appears in Collections:Publikationen School of Management and Law

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