Development and evaluation of stress tests : Utilizing stress tests to complement the current ex-ante analysis at Second Swedish National Pension Fund

Detta är en Master-uppsats från Umeå universitet/Institutionen för matematik och matematisk statistik

Sammanfattning: Stress tests are on a regular basis mentioned on the financial markets where some institutions have to perform it as a regulatory requirement and others have it as an optional way to complement their predictions. Stress tests are used to see how robust a financial instrument or a portfolio are in various scenarios. The challenge is to construct a stress test that is sufficiently extreme, while it is still plausible. The objective of this work is to study various stress testing methods that can be applied at Second Swedish National Pension Fund (AP2) associated with their prediction of market risks. Two different methods are implemented with various scenarios and thus unique analyzes are performed for each method. Hence, the methods are not compared against each other, but each method is analyzed individually with the advantages and disadvantages based on the choice of method and type of scenarios. The results of the first method, historical stress test, shows that the stressed portfolio would decrease in value under the specified scenario. For the second method, coherent stress test, the results vary for the different scenarios. 

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