Getting stressed
Joe Risk-Manager has a problem. Given the recent turbulence in the energy markets, senior management has realised that a simple value-at-risk (Var) measure is insufficient for measuring the risk of the firm’s portfolio. So Joe has been asked to perform stress tests on the trading portfolio.
The stress test he chose was a parallel shift of all forward curves by five standard deviations. After the curves were shifted, the portfolio was revalued and the difference in values was taken
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