A systematic approach to multi-period stress testing of portfolio credit risk

► We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in current stress tests. ► Under our approach, the plausibility of a scenario is quantified by its distance from an average scenario. ► For a given level of plausibility, we search systematically for the most adverse scenario. ► We show how this method can be applied to some models already in use by stress testing practitioners. ► In our empirical application we identify, for a given level of plausibility, more harmful scenarios than standard methods.