Stress-Testing of the Trading Portfolio

Student: Mukhamadieva Alfiia

Educational Programme: Financial Markets and Financial Institutions (Master)

Year of Graduation: 2018

The purpose of this paper is to develop a model for estimation of the portfolio market value in case of realisation of the worst-case scenario for the portfolio at a given likelihood level. Nowadays stress tests are important tools applied by various financial and non-financial institutions. Central banks and international regulatory bodies are also interested in the development of this tool. Such interest may be explained by the fact that stress tests are flexible tools that can be applied for analysis of wide range of objects. Stress tests may be defined as a set of different methods applied by financial institutions in order to estimate their exposure at risk in case of exceptional but possible shocks. In this paper the worst-case scenario was searched among a set of plausible scenarios was conducted with subsequent portfolio loss level estimation and comparison of these results with results of standard tests.

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