Trust in clusters: a new approach to stress testing

Search for plausible stress scenarios leads Natixis risk managers in a new direction

Cluster theory: the idea is to generate, on a daily basis, the main credible scenarios that would be the most adverse to the trading floor in a stressed environment

Etienne Varloot is head of quantitative research and global markets regulatory strategy at Natixis and a former deputy head of market and credit risk at the Banque de France. Vivek Shah is head of market risk at Natixis in London

Stress testing has become increasingly popular with supervisors since the financial crisis – both at the bank and desk level – given the well-documented limitations of other risk metrics such as value-at-risk. The Basel Committee on Banking Supervision's Fundamental