Stress Testing

Financial professionals are likely aware of the stress testing regulators have applied to banks and financial institutions to help identify how resilient their balance sheets would be to renewed market crisis. However, it may not have occurred to them that conceptually similar approaches can be applied to their own portfolios.

Meaningfully assessing portfolio risks is never easy. Often, conventional risk measures do not fully capture all risks inherent in a portfolio, particularly under difficult market conditions.  Portfolio stress testing helps identify and quantify risks within a portfolio and can reassure an investor as to how their portfolio might respond to specific market outcomes or other concerns. Stress testing can be done against significant historical market events, or against some invented scenario that reflects their particular concerns.

For an introduction into stress testing we recommend starting with Managing risk: Stress-testing investment portfolios, with articles progressing in complexity to An Investigation of hypothetical variance-covariance matrix stress-testing for advance practitioners.

Implementing a Portfolio Stress-testing Programme

In previous articles Quintin Rayer gave an overview of portfolio stress-testing, what it can and cannot do, offered a definition,…

Read article

Testing Ground

Quintin looks at how stress testing can help estimate portfolio impacts with restructuring to limit the downside. With guidance, advisers…

Read article

Artificial portfolio stress-testing and how advisers add value to this process

In previous articles Quintin Rayer gave an overview of portfolio stress-testing, what it can and cannot do, offered a definition,…

Read article

A Flaw in the Ointment

Quintin looks at how putting portfolios through stress testing can make sure that trustees are actively working to protect these…

Read article

Historical Portfolio Stress-testing

In previous articles Quintin gave an overview of portfolio stress-testing, what it can and cannot do, offered a definition and…

Read article

Testing Times, Part 2

In a follow-up to his article of October 2016 in the STEP Journal, Quintin discusses the pros and cons of…

Read article

Testing Times (ACCA)

Quintin explains how trustees can use investment stress-testing to identify the weak points in a portfolio. Professional accountants are frequently…

Read article

The different types of portfolio stress-testing

In previous articles published on DISCUS, Quintin Rayer gave a brief overview of portfolio stress-testing, what it can and cannot…

Read article

A more detailed look at portfolio stress-testing

In a previous article Quintin Rayer gave a brief overview of portfolio stress-testing.  This follow-up article looks more closely at…

Read article

The increasing value of stress-testing investment portfolios

Quintin looks at how stress-testing investment portfolios can help managers actively protect portfolio values against extreme market events and demonstrate…

Read article