Study Notes: Stress Testing

Topic Progress:

Chapter 8. Stress Testing Study Notes contain 24 pages covering the following learning objectives:

* Describe the rationale for the use of stress testing as a risk management tool.
* Identify key aspects of stress testing governance, including choice of scenarios, regulatory specifications, model building, stress-testing coverage, capital and liquidity stress testing, and reverse stress testing.
* Describe the relationship between stress testing and other risk measures, particularly in enterprise-wide stress testing.
* Explain the importance of stressed inputs and their importance in stressed VaR and stressed ES.
* Identify the advantages and disadvantages of stressed risk metrics.
* Describe the key elements of effective governance over stress testing.
* Describe the responsibilities of the board of directors and senior management in stress testing activities.
* Identify elements of clear and comprehensive policies, procedures, and documentations for stress testing.
* Identify areas of validation and independent review for stress tests that require attention from a governance perspective.
* Describe the important role of the internal audit in stress testing governance and control.
* Describe the Basel stress testing principles for banks regarding the implementation of stress testing.

After reviewing the notes, you will be able to apply what you learned with practice questions.

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