Test Your Portfolio's Exposure to Extreme Events

A holistic analysis of risk includes understanding a portfolio's sensitivity to forecasted and extreme events.

While tracking error and VaR focus on measuring current or historical risk, stress testing reveals how well a portfolio is positioned in the event your forecasts prove true. Understand your exposure to future events:

• Study the performance implications of extreme events
• Choose between two calculation algorithms, exponentially and standard-weighted; exponentially weighted tests give more weight to historical periods most like your scenario
• Use event-based or time-based stress tests