Stress testing complements risk measures by capturing institution-wide exposure to unlikely but plausible events, which can be expressed through a range of significant moves across multiple financial markets (e.g. movements in credit spreads, interest rates, equity and commodity prices and foreign exchange rates), as well as adverse changes in counterparty default and recovery rates. By means of stress-testing, institutions can identify extreme market conditions that could excessively strain their financial resources, for further timely development of risk reduction strategies.
PrevioRisk Stress Testing module supplies our clients with:
- Granularity, flexibility and speed of computation
- Ability to analyze potential losses due to “event risk”
- Access to a library of historical events or hypothetical scenarios
- Opportunity to use or modify the underlying regression analysis
- Possibility to probe for portfolio-specific vulnerabilities and identify sensitivities to specific risk factors (e.g. rise in interest rates or changes in applied volatility)
Stress Testing Process Flow