Stress Testing

Question 1

Define: Stress-testing

Question 2

Sensitivity Testing v Scenario Testing

Answer 2

SCENARIO-TESTING:
- significant changes to risk factors
- observe future state including ripple effects & management actions over a longer time horizon
- more complex & comprehensive

SENSITIVITY-TESTING:
- incremental changes to risk factors
- shock is more immediate & time horizon shorter
simpler
- fewer resources required