Questions tagged [stress-testing]

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1answer
108 views

Pragmatic question about use of Stress Tests/metrics

I have been looking at the onboarding of some derivative products, and the subject of our internal stress framework. I suspect like similar businesses, we have a set of stress scenarios, mostly based ...
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2answers
90 views

Stress testing by Banks

AFAIK typically banks stress test it trading portfolio by assuming stressed value of risk factors or by considering times series corresponding to some historical ...
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1answer
84 views

Market impact in stress

I am trying to model the price impact in stress for a period of several days. Specifically, I am looking for a function/model that predicts the price movement ...
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0answers
41 views

Market risk stress scenario vendor

Do you know of any source of market risk (macro) scenarios? I am looking for scenarios over risk factors (such as for different segments of spreads, yield curves, swap spreads, stock indices, volas ...
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0answers
43 views

Running a Hedge PnL Stress Test - how to?

I have a long only global equity portfolio hedged a by shorting an equity future. Say my portfolio is long USD100m equities and therefore I short USD100m of MSCI World future (assumed Beta of ...
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1answer
159 views

How to stress test a correlation matrix

As part of a mean variance portfolio task, I am calculating portfolio risk and optimal allocations between assets given required level of return. Input: expected returns, volatility and correlation ...
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1answer
62 views

EBA Stress Test Arbitrage

The EBA stress test defines specific shocks to yield curves that are applied to positions as at year end. There is no account for cashflows - it is simply an immediate shock. Suppose the interest ...
2
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1answer
108 views

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

My company is looking to launch a new long only global equity fund. The product committee wishes to see a risk analysis covering various risks, including liquidity. The main measure is time to ...
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0answers
40 views

LP for max stress test

I'm trying to find a solution to the following problem: Assume a portfolio of $n$ zero coupon bonds mapped in risk by their respective DV01. Assume that the ZC portfolio created cannot exceed max and ...
1
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1answer
117 views

Required adjustments for stressed yield curves

I was looking at Basel proposed interest rate shocks. Using the standard US Treasury Yield Curve for the period starting from September 2017 to August 2019, I was able to construct Steep and Flat ...
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2answers
352 views

Stress testing fixed income Yield curve with Nelson Siegel

I am attempting to stress test the Zero coupon Yield curve using The Nelson Siegel model as described in the following papers : Generating Yield Curve Stress-Scenarios Representative Yield Curve ...
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1answer
149 views

Applying Interest Rate Shock to Equities, FX, etc

I am looking for resources on practical applications of non-parallel Interest Rate shock for a portfolio that contains different types of investments. Specifically: how to identify the tenors and how ...
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2answers
67 views

From risk limits to pnl projection?

As a fresh risk manager, today I got an assignment to check whether our risk measurements / limits are setup properly (whether the limits are so tight that affect our p&l) . Better if I can ...
4
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1answer
128 views

Stress Testing approaches at Pension Funds/Asset Management companies

I am looking for resources on Stress Testing for non-banking institution, specifically for long term oriented Asset Management companies, Hedge Funds, Pension Funds, and other Investment companies. ...
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0answers
329 views

How to interpret DV01 in terms of PCA equivalent?

I have computed the PCs for daily changes in the UST yield curve over the last 5 years using the covariance matrix and can explain 94% of the variance using the first two components, which is good ...
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1answer
100 views

Which market developments are we likely to see within the next years?

I am working on an analysis to estimate financial risks, especially for pension funds. More specifically, I am trying to define some stress scenarios which could have an affect on the solvency of a ...
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0answers
56 views

Does it make sense to calculate an option price in future (at t+1)?

Often I ask myself whether it makes sense to calculate the price of a Call at t+1 supposing for example that underlying asset does no move i.e. $S_{t+1} = S_{t}$ ...
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1answer
208 views

CCAR Shocks Scenario

I was going through CCAR-2018-severely adverse market shocks file and under the tab: Equity by Geography, I found these shocks. I have two questions: 1) Whether the shocks to Vol points are in % ...
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1answer
94 views

Commercial providers of scenario analysis and modeling

What are the major commercial providers that specialize in modeling the impact of specific global events on asset class performance? I'm familiar with Oxford Economics' Global Scenario Service, ...
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0answers
140 views

Multi objective optimization Swaption/Caplets joint Calibration

People suppose that we have a two asset type portfolio optimization (as Intrument Type 1 and 2). In the each portfolio refered by the instrument type there are 2 asset so we have four asset in total. ...
1
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1answer
297 views

testing stressed VaR

How can you compare stressed VaR estimates? What are statistical tests for assessing the quality of stressed VaR estimates? I think the VaR Coverage test for example by Christoffersen (1988) would ...
0
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1answer
223 views

Should price impact be the same for positive/negative implied volatility shocks?

I am using a vendor system to stress a portfolio which contains (among others) derivatives with implied volatility exposure. The issue is that when using a 1000 bps implied volatility stress upwards ...
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2answers
1k views

Stress Testing for VaR

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 ...
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1answer
162 views

Do I need simulink to model the risks of an option portfolio

I wish to buy Matlab Home and learn to model the risks of a derivatives portfolio and then stress test it. So I am guessing I will need : Stochastic calculus Linear algebra Stats/Probability Some ML ...
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2answers
3k views

How to check that an interest rate curve is arbitrage free

I have 2 interest rate curves (LIBOR 3M and OIS). I want to create stress scenarios for those two curves. Is it possible that some scenarios will make my term structure arbitrageable? How can I test ...
1
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1answer
158 views

Standard Formula for Solvency II

I am qualified in Mathematics and Physics but would like to have a career in Finance. I will be starting an M.Sc. In Financial Mathematics next October but am already reading about certain topics to ...
3
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1answer
956 views

Stress Testing Methods

I'm working on the following task: Given quarterly data: a time series representing the 1-year realized (10 years of data) rates of default on a portfolio of mortgages a slew of realized (10 years ...
5
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1answer
993 views

Definition of risk factors for market risk scenario testing

I am doing a research for stress testing in market risk. The usual process I found out for scenario testing is: Define risk factors upon the portfolio Define the desired scenarios Vary the risk ...
4
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1answer
547 views

Market risk stress testing?

I am doing a research for a paper for market risk stress testing. In fact I found some information on the web about this important topic such as: Stress Testing from Art to Science Stress Testing ...
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0answers
472 views

Stress testing covariance

Going one level beyond stressed scenarios, to parameters e.g. for a VaR measure: what are the most common approaches for stressing a covariance/correlation matrix, especially taking portfolio exposure ...