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Scenario Testing vs Sensitivities

G

Georgina

Member
Hi

I'm having trouble understanding the practice difference between scenario testing and sensitivities. Could someone please give me an example.

Thanks
Georgina
 
Hi. In addition to Esther's example, it might be worth looking at the definitions of
(a) stress testing
(b) sensitivity analysis
(c) scenario testing
as in the October 2010 exam (Q3).

(a) Stress testing measures loss under extreme values of the chosen variable (without necessarily considering the probability of that extreme event).

(b) Sensitivity analysis is simialr to stress testing but under less extreme variations. It is used to investigate what would happen if individual assumptions shifted slightly.

(c) Scenario testing usually refers to the process of measuring the impact of changes to two or more variables under devised “what if” scenarios – again without necessarily considering the probability of that scenario.
 
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