Risk Management

[derswap07]

What is the difference between stylized scenario analysis and scenario analysis ??

 

[mwvt9]

Stress testing:
1. Scenario Analysis
2. Stressing Models
Scenarios Analysis
1.a. Stylized scenarios
1.b. Actual Extreme Events
1.c. Hypothetical Events
Stressing Models:
2.a. Factor Push
2.b. Max Loss optimization
2.c. Worst Case

 

[derswap07]

I was referring to the difference between those two.

 

[mwvt9]

My post indicates that Stylized scenarios are a TYPE of scenario analysis. You can’t compare the two, one is a type of the other.

 

[jeks]

i want to know what’s the difference between a stressing model and scenario analysis.

 

[mwvt9]

Scenario analysis changes one or more variables to see the effect.
Stressing models push variables to extremes to see the effect.

 

[paullllly]

There are no differences per se, they were created for the same purpose. Stressing Models is just an extension of scenario analysis. But you could think of scenario analysis like testing your portfolio under adverse scenarios. Best example relevant to today were the bank stress tests. Stressing models push those scenarios to the maximum limits whether realistic or not. They both also suffer from the same problems such as incorrect input and assumptions and user bias. The crude visualization might help below
Stressing Models <>Scenario Analysis>>Stressing Models

 

[florinpop]

stressing models take one or more factors to an extreme, while scenario analysis deals with different probable scenarios

 

[pmoonoi]

Assuming there is a difference. I would say first we use scenario analysis which key variable are relevant contributors and having selected such a factor or factors, we will apply stress testing model and “stretch” this variable to the maximum to see the final output on the independent variable. In short, to do a stress test, you need to engage a scenario analysis to see what key variable you want to apply to the stress testing. Any comment?