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Actual Extreme Events
Definition
This is a type of scenario analysis used in stress testing. It involves evaluating how a portfolio today might have performed in different extreme environments that have occurred in the past. The analyst will most interest rates, commodity prices, FX rates and stock prices to extreme levels that match negative market periods in the past.
Using the term Actual Extreme Events :
The portfolio manager instructed his quantitative analyst to model actual extreme events over the past 50 years in order to position the portfolio to better withstand these types of scenarios. This type of analysis is similar to a factor push scenario.
Pay Special Attention To :
Even if a PM feels they have properly hedged their portfolio from extreme events, things have a way of unfolding differently from the past, so you must be able to make educated guesses about where the risks may be in the future as well and try to protect against those as well.
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Related terms
Factor Push , Objective Function
'Actual Extreme Events' appears in these other terms:
Actual Extreme Events
