Disadvantages of scenario analysis and stressing models?

[deriv108]

I know you have the answer. No easy copy and paste from the book.

 

[dtrynoski]

Both can be subject to user bias

 

[deriv108]

Disadvantages of Scenario Analysis:
1) Inability to accurately measure by-products of major factor movements.
2) Incorrect assumptions and correlations, user bias
Disadvantages of Stressing Models:
1) Incorrect assumptions and correlations, user bias
2) Assume the model function in an extreme risk climate.
Please correct me if I’m wrong.

 

[deriv108]

dtrynoski, can you please give an example of the user bias. Not much in the books.

 

[dtrynoski]

Well, someone correct me if I’m wrong, but the easiest way to think of it is, your model essentially has incorrect sensitivities to the factors, as well as correlations between the different factors and is hence bias.