Stress testing under stress

The extreme market-moving events of this year are causing risk managers to revisit the basics of stress testing – how often, which factors to include, and how sensitive and specific to make them. Is there a set answer or must each firm decide its own priorities? Ned Molloy investigates

Stress testing

When British prime minister Harold Macmillan was asked by a young journalist what represented the greatest challenge for a statesman, he reportedly gave the famous reply: "Events, my dear boy, events".

Half a century later, disasters and political turmoil in the first quarter of 2011 once again brought home the fact that even events believed to be very unlikely, can, and do, happen.

In the first quarter of 2011, unrest in the Middle East and the Japanese earthquake and tsunami caught markets by

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