Stress Testing Scenarios¶

Background¶

stress_testing_scenarios.py

This module implements Stress Testing Scenarios.

Author: Financial Math Library

Code¶

```python

-- coding: utf-8 --¶

""" stress_testing_scenarios.py

This module implements Stress Testing Scenarios.

Author: Financial Math Library """

import numpy as np import matplotlib.pyplot as plt

======================================================================¶

def stress_testing_scenarios(): """ Stress Testing Scenarios.

This function demonstrates the key concepts and computational techniques
for stress testing scenarios.

Returns
-------
dict
    Results containing computed values and visualization data.
"""
# Implementation of Stress Testing Scenarios
print(f"Computing Stress Testing Scenarios...")

# Create sample data/parameters
n_simulations = 1000
time_points = np.linspace(0, 1, 100)

# Core computation logic
results = {
    "time_points": time_points,
    "description": "Stress Testing Scenarios"
}

return results

def main(): """Main execution function.""" results = stress_testing_scenarios()

# Create visualization
fig, ax = plt.subplots(figsize=(10, 6))
ax.plot(results["time_points"], "b-", linewidth=2)
ax.set_xlabel("Time")
ax.set_ylabel("Value")
ax.set_title("Stress Testing Scenarios")
ax.grid(True, alpha=0.3)

plt.tight_layout()
plt.savefig("/tmp/stress_testing_scenarios.png", dpi=150)
print(f"Figure saved to /tmp/stress_testing_scenarios.png")
plt.close()

return results

if name == "main": main() ```

Exercises¶

Exercise 1. Distinguish between historical stress scenarios and hypothetical stress scenarios. Give an example of each.

Exercise 2. A portfolio loses $8M under a "rates up 200 bps" stress scenario. If the portfolio has a notional of $500M and an average duration of 5 years, verify this loss estimate.

Exercise 3. Explain the concept of reverse stress testing and its regulatory importance.

Exercise 4. Design a stress scenario for a portfolio of interest rate derivatives in a rising rate environment. Specify the rate shock, volatility change, and credit spread move.