Systematic scenario selection: stress testing and the nature of uncertainty

作者：Flood Mark D^*; Korenko George G

来源：Quantitative Finance, 2015, 15(1): 43-59.

DOI：10.1080/14697688.2014.926018

• Maximum portfolio loss
• Knightian uncertainty
• Value at risk
• Stress testing
• Risk management
• Elliptical distribution

We present a technique for selecting multidimensional shock scenarios for use in financial stress testing. The methodology systematically enforces internal consistency among the shock dimensions by sampling points of arbitrary severity from a plausible joint probability distribution. The approach involves a grid search of sparse, well distributed, stress-test scenarios, which we regard as a middle ground between traditional stress testing and reverse stress testing. Choosing scenarios in this way reduces the danger of 'blind spots' in stress testing. We suggest extensions to address the issues of non-monotonic loss functions and univariate shocks. We provide tested and commented source code in Matlab((R)).

• 出版日期2015-1-2