What Is the Difference between Historical and Hypothetical Stress Testing? ⎊ Path

What Is the Difference between Historical and Hypothetical Stress Testing?

Historical stress testing uses data from actual past market events (e.g. 2008 crisis) to assess portfolio losses.

Hypothetical stress testing uses fabricated, extreme but plausible scenarios (e.g. a sudden geopolitical shock) that may not have occurred historically. Both are used to ensure margin coverage in severe conditions.

How Do Stress Tests in Volatile Periods Differ from Normal Conditions?

How Does Stress Testing Relate to Clearing House Solvency?

Differentiate between Historical and Hypothetical Stress Testing Scenarios

What Is the Difference between VAR (Value at Risk) and Stress Testing in Margin Models?

How Do Exchanges Determine the Optimal Size for Their Insurance Fund?

How Does a Clearing House Use Stress Testing to Set Margin Levels?

How Does a Clearing House Use ‘Stress Testing’ to Manage Its Risk?

What Is the Difference between a Historical and a Hypothetical Stress Test Scenario?

Glossar

Hypothetical Stress Testing

Testing ⎊ Hypothetical Stress Testing is a forward-looking risk management technique that evaluates the impact of theoretical, non-historical market events on a portfolio or financial institution's solvency and liquidity.

Stress Testing

Scenario ⎊ Stress Testing involves constructing and executing extreme, yet historically plausible, market scenarios, such as a sudden 50% drop in the underlying cryptocurrency price combined with a temporary oracle failure.