Risk Reference

Stress-Test Foundations

Define the question, the loss measure and the difference between a scenario and a forecast.

Understand conditional portfolio losses, exposure mapping, valuation horizons, and the limits of a stress-test result.

Choose between historical factor replays, constructed scenarios, and transparent hybrids without confusing them with portfolio backtests.

Separate shock size, joint plausibility, duration, and portfolio impact when building a transparent severity ladder.

Start with a defined loss or liquidity threshold and investigate the combinations of shocks that could reach it.