This may have been already discussed , Pg 248 pf Bk 5 , Scenario Analysis “involves using actual extreme events … hypothetical events – factor push …” The morning 2008 exam had some questions which were asking for stress testing approaches ( totally flunked that one ). My problem is Pg248/249 mixes terms , is Stress testing and scenario analysis one and the same ? The answer had parts of both stress testing section (Pg 249) and scenario analysis section ( pg 248). Seems confusing
Scenario is a type of stress testing. There are 3 types of scenario analysis: stylized, actual extreme events and hypothetical events. The other types of stress testing include factor push and worst case scenario (there may be more). I also got burned by this one.
In fact, I think stress testing is a subtype of scenario analysis. Stress testing means you push one or all factors to their extreme level (an assuming scenario) and determine possible maximum loss that VAR (assumption about normal distribution) can’t cover. Scenario analysis has a broader definition than that.
best_seller249 Wrote: ------------------------------------------------------- > In fact, I think stress testing is a subtype of > scenario analysis. Stress testing means you push > one or all factors to their extreme level (an > assuming scenario) and determine possible maximum > loss that VAR (assumption about normal > distribution) can’t cover. Scenario analysis has a > broader definition than that. You know what, that may be the case. But the way my Stalla guide is laid out, which I’m sure is also laid out similarly in the CFAI text, then I’m taking that as a given. If CFAI says my name is Goat, my name is Goat.