Stress testing vs. Scenerio analysis understand, scenario, testing

ASSet_MANagemen

Hey all,

Would anyone be able to shed some light on key distinctions between the two? I understand stress testing is a form of scenario analysis, but is it just an exaggerated scenario analysis? I just asked a charter holder at work and he said "it's when you kick the variables up to 11." Sufficient answer?

skycfa

According to what I understand the major difference is:

Scenario Analysis: How a portfolio will perform, given various changes, during a SPECIFIC period of time

Stress testing: How a portfolio will perform, given various changes, during a FINANCIAL CRISIS or MAJOR DISASTERS

Zestt

Thanks guys,

I think I have the gist, though I sense some uncertainty amongst the group as well.

happy studying

IAmNeil

Stress Testing is normally employed as a complement to VAR, it measures the impacts of unusual events that may not be reflected in your typical VAR calculation. There are two forms of stress testing, Scenario analysis and Stressing models

susana

I think thats the best explanation if its correct

mik82

pimpineasy Wrote:
-------------------------------------------------------
> mcap11
>
> scenario testing involves one or multi variableS?
>
> i say multi u say one ..........can someone clear
> this up plz
>
> other than that i agree with the rest of what u
> said


Both scenario and stressing models can involve multiple variables -
major point (when using multiple variables) is that scenario applies shocks sequentially whereas stressing models apply them simultaneously...

PalacioHill

I dont think scenario equals sensitivity. (however, i do think i was mixing up sensitivity with "stress test" in my earlier comment.) Scenario changes multiple variables, Sensitivity is one. Both are types of stress tests.

oneboy

if scenario=sensitivity analysis, then one variable is manipulated, not sure about the nomenclature

lcw77

Scenario is multiple (i.e. whole scenario changes). Stess is one.

dyga

mcap11

scenario testing involves one or multi variableS?

i say multi u say one ..........can someone clear this up plz

other than that i agree with the rest of what u said