Portfolio Stress Testing
Refreshed January 2026 | CPD time: 1 Hour 15 Minutes
Portfolio stress testing against significant historical market events, or using invented scenarios, may help identify and quantify risks. It can help reassure the portfolio or risk manager as to how the portfolio might respond to specific market outcomes or other concerns. This module examines stress testing of a portfolio of conventional assets against market risks. It includes a definition of stress testing and classification, as well as practical examples. The stress-testing methodologies explored include both ‘historical’ and ‘hypothetical’ stress tests. Examples are used to illustrate key concepts, drawing out the strengths and weaknesses of stress testing.
1. Why Stress Testing Portfolios Matters
2. Classification of Portfolio Stress Testing
3. Implementing Portfolio Stress Testing
4. Historical Stress Testing using VaR
5. Historical Stress Testing Event Periods
6. Hypothetical Stress Testing Using the Variance-Covariance Matrix
7. Hypothetical Stress Testing using Created Events
8. Different Types of Stress Tests
9. Summary
Module Test