Stress Test & Scenario Matrix
Revalue a book under prescribed factor shocks, build a scenario PnL grid and identify the worst case.
The scenario
The risk committee wants to know what the book loses in a crisis, not just its VaR. Build the stress-test workbook: revalue the book under a set of prescribed factor shocks, produce a scenario PnL matrix, identify the worst case, and answer one reverse-stress question.
Where this shows up
Revaluing a book under prescribed shocks and producing a scenario matrix is a routine risk task and a common assessment at firms of this type.
Firms such as Barclays, Nomura, JPMorgan.
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Task brief
# Stress Test & Scenario Matrix **Role relevance:** Market Risk take-home **Estimated time:** 50 minutes **Difficulty:** Intermediate **Format:** Excel (.xlsx) ## What you are given - stress_test_scenario_matrix_starter.xlsx with the book sensitivities, an equity gamma term and six prescribed scenarios - A Formula Help tab covering revaluation, worst-case lookup and reverse stress ## What you must deliver 1. A completed scenario PnL matrix with a total per scenario 2. The worst-case scenario, found by formula rather than by eye 3. The reverse-stress equity shock for the committee's threshold loss 4. A one-sentence read on what the worst case means ## Constraints & assumptions Shocks are applied jointly within each scenario, never one factor at a time. Rates are in basis points, equity and FX in per cent, vol in vol points. Every cell must reference the input tabs. ## Submission note Complete the starter file, then compare your work against the mark scheme.
Your tasks
- 01Lay out the book's sensitivities to each factor (equity, rates, FX, vol) and a set of named scenarios of joint shocks.
- 02Revalue the book under each scenario as the sum of sensitivity times shock, including a second-order gamma term where given.
- 03Build the scenario PnL matrix and highlight the worst-case scenario.
- 04Answer the reverse-stress question: what single shock would produce a stated threshold loss.
How you're assessed
The full points-based mark scheme is included with the pack.
What you'll learn
- How a scenario revalues a book through its sensitivities.
- Why shocks are applied jointly, since correlations move towards one in a crisis.
- What reverse stress testing adds beyond forward scenarios.