Portfolio 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.

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…

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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…

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Testing Times (ACCA)

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

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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…

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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…

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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…

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Managing risk: stress-testing investment portfolios

Risk is always a hot topic and Quintin Rayer overviews the stress testing of investment portfolios. Assessing portfolio risk in…

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Testing Times

Quintin explores how portfolio stress testing can address trustees’ concerns about the impact of extreme market events on portfolios, and…

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An investigation of hypothetical variance-covariance matrix stress-testing

This paper investigates an example of stress-testing a portfolio of conventional assets against market risks using artificial scenarios based around…

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Dissecting portfolio stress-testing

Putting meaningful numbers to portfolio risks is challenging. Conventional risk measures are often considered not to fully capture all risks…

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