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CFA Level 2
Portfolio Management

Understanding Stress Testing in Portfolio Management

Very Easy Risk Management Applications Stress Testing

In portfolio management, stress testing is a risk management technique used to evaluate how certain stress conditions would impact the value of a portfolio. It involves simulating extreme market scenarios to identify potential vulnerabilities. A portfolio manager at a financial institution is considering conducting stress tests to assess the exposure of their portfolios to various economic shocks.

Which of the following statements about stress testing is true?

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