Purpose vs definition of stress testing

emiliaemilia
in OSFI.Stress

Hello!
What is the difference between this? I see at the header it says the most important things to note are:

  • purpose of stress-testing
  • roles & responsibilities of Board of Directors versus senior management regarding stress-testing program
  • compare scenario-testing versus sensitivity-testing
  • definition of stress-testing
  • SCENARIO: analyze a given scenario for quality of risk management & stress-testing, and suggest improvements
  • rudimentary considerations in a stress-testing program [Hint: RUDI]

This implies that there is a difference between the purpose and the definition.

Thanks!

Comments

  • Staff-TSStaff-TS

    The definition of stress testing is defined as follows in the battle cards:

    • Stress testing is a risk management technique to evaluate effects on financial condition, due to specified changes in risk factors, corresponding to exceptional but plausible events.

    There is also a battle card talking about the purpose, and is remembered by the acronym QUIK-SUMM. Both cards can be seen in mini Battlequiz 1 in the wiki, or using the full Battlequiz button at the bottom of the wiki.

    Although we need to know exactly what stress testing is (definition), we also need to know why we are utilizing this tool and how it helps us (purpose).

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