Stress testing has long been a powerful arrow in the hedge fund and asset manager’s quiver to test how their portfolios may react in extreme market, geopolitical or macro-economic events. Ten years after the financial crisis, the practice of combining statistical models with stress tests has become the norm, but designing the right stress test remains as much art as science. Which stress test - historical, user-defined or transitive? Which risk factors? What best practices should you employ to meet your objectives?
We offer clients the most sophisticated and comprehensive stress testing framework on the market, with multifaceted scenario, time span and correlation views of portfolio risk. Our clients use Axioma-designed stress testing best practices to derive the most value out of their testing regimen:
> Learn more best practices
We are researching how machine learning techniques can help construct smarter stress tests. Our advanced-learning algorithms are looking at how specific inputs, such as exposures, risk statistics, structural trades and more, can recommend the stress test design and test period that would yield the most intuitive results. This would reduce your time to develop and construct stress tests and means you can run tests more frequently for timely insight into your portfolio risk.
> Read more about our approach to dynamic stress tests
Contact Axioma today to learn how we can help you make better informed investment decisions through stress testing
Research paper: Reverse Stress Testing Challenges: Toward a Systematic Framework
Blog post: The Art of Designing a Stress Test For Market Risk: A Step-By-Step Approach
Blog post: Enhanced Transitive Stress Testing: The Dynamic Difference
Research paper: Stress Testing Best Practices
Research paper: Toward Dynamic Stress Tests