Stress test: Difference between revisions
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imported>Doug Williamson (Space to highlight subjectivity point.) |
imported>Doug Williamson (Expand expressly to the banking context. Source: The Treasurer, November 2015, p49.) |
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Stress testing necessarily involves a significant degree of judgement and subjectivity in identifying the appropriate worst case inputs with which to run the stress test. | Stress testing necessarily involves a significant degree of judgement and subjectivity in identifying the appropriate worst case inputs with which to run the stress test. | ||
In the banking context, stress testing is routinely carried out on banks to identify the level of the risk of their failure. | |||
Revision as of 21:19, 8 November 2015
Stress testing is a form of scenario analysis in which worst case data are input into a financial model.
The idea is to test whether creditworthiness - or any other attribute being modelled - is robust enough to survive the selected 'worst case' scenario.
Stress testing necessarily involves a significant degree of judgement and subjectivity in identifying the appropriate worst case inputs with which to run the stress test.
In the banking context, stress testing is routinely carried out on banks to identify the level of the risk of their failure.
