Stress Testing, RAROC, and Capital Planning
Free GARP FRM Part II lesson in Operational Risk and Resilience. 22 min read, ~3,232 words.
Stress testing answers a different question than VaR: VaR asks the loss at a confidence level, stress testing asks the forward-looking impact if a defined scenario occurs (no confidence level attaches to a scenario). Reverse stress testing is expected by both the Fed and EBA: it asks what would break...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
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