Hypothetical Boundary Calculator
Reverse-stress loss boundary
Solve for an equity move that reaches a specified loss budget, with other-position P/L held fixed.
Required equity move
-40.00%
- Portfolio loss target
- -$1,000,000
- Reconciled portfolio P/L
- -$1,000,000
Loss boundary under fixed other-position P/L. This is not a probability or forecast.
What is being solved?
Equity shock (%) = (-portfolio value * budget / 100 - other P/L) / (equity value * beta / 100)
The default budget is $1 million. After $200,000 of losses elsewhere, the equity sleeve must lose $800,000. A $2 million sleeve at beta one reaches that amount at an assumed 40% decline.
Read the complete worked reportWhat the boundary does not establish
One factor is varied while the rest is frozen. A real failure state could involve collateral, redemptions, unavailable financing or correlated losses that this equation does not capture. A unique algebraic solution is not evidence of a unique economic path.
Reverse-stress design principles