Stress Testing: Basics

Stress Testing: Basics

Intuition Publishing Pty Ltd
Updated Aug 26, 2020

Many risk metrics failed to prepare banks for the losses incurred during the global financial crisis. The well-used metric Value at Risk (VaR) came in for particular criticism. Here we look at the weaknesses of VaR and examine the role of stress testing, scenario analysis, and sensitivity analysis in a post-crisis world.