I am trying to perform stress testing for VaR and have taken into consideration two methods:- 1. Sensitivity analysis 2. Historical scenario analysis.
According to the Derivatives Policy group we need to take into consideration 5 factors which are:- o Parallel yield curve in ±100 basis points. o Yield curve shifts of ±25 basis points. o Stock index changes of ±10%. o Currency changes of ±6%. o Volatility changes of ±20%.
- I am trying to perform the stress testing through sensitivity analysis in excel for which I am not able to figure out how to mould the prices for equities,bonds and derivatives by taking into account above factors through the excel function data table. For instance, if I take into account the 3rd factor mentioned above as STOCK INDEX CHANGES OF +- 10% and one of my stock in my portfolio is listed in Dow Jones, so how can I adjust the prices for a particular time period (say 6 months).?
2.Secondly if I take historical scenario analysis in which I am taking the scenario for instance 1997 Asian crisis, how do I adjust the prices in this scenario also. In this case, for instance, my portfolio contains all the asset class which are issued in the last 10 years and therefore I dont have any data (prices etc.) for them related to the 1997 asian crisis. SO how do I adjust the prices in this case also?.
P.S :-I am using variance covariance method for calculating VaR. Eagerly waiting for valuable suggestions on this.