Documentation / Stress Test Methodology — Shock Propagation & P&L
Stress Test Methodology — Shock Propagation & P&L
Run stress tests that compute P&L impact from scenario shocks and portfolio exposures. Five shock methodologies, impact matrices, and attribution analysis.
Table of Contents
What Are Stress Tests?
A stress test calculates the projected P&L impact of a scenario's shocks on your portfolio's exposures. It answers the question: "If this scenario happened, how much would my portfolio gain or lose?"
Stress tests connect two things you've already built — scenarios (with their risk factor shocks) and portfolio snapshots (with their sensitivities). The platform applies each shock to the corresponding exposure to compute factor-level and total P&L impact.
Running a Stress Test
To run a stress test:
- 1Navigate to Stress Tests and click "New Stress Test."
- 2Give it a name and optional description.
- 3Select one or more scenario-portfolio pairs. Each pair combines one scenario's shocks with one portfolio snapshot's exposures.
- 4Choose a shock methodology (see below) to determine how historical shocks are selected for each risk factor.
- 5Click "Run" — results compute immediately.
Shock Methodologies
When a scenario has multiple historical shocks for the same risk factor, the methodology determines which one is used:
| Methodology | How It Selects Shocks |
|---|---|
| Worst Case | Picks the shock with the largest absolute magnitude for each factor — the most extreme move regardless of direction. |
| Historical Min | Picks the most negative shock for each factor — the worst historical drawdown. |
| Historical Max | Picks the most positive shock for each factor — the largest historical rally. |
| Directional | Follows the net price trend direction. If the factor has been trending up, uses the max shock; if down, uses the min. |
| Mean | Averages all available shocks for each factor — a moderate, central-tendency estimate. |
Understanding Results
After a stress test completes, you see several views of the results:
- Impact matrix — A heatmap showing total P&L impact for each scenario-portfolio pair. Color intensity indicates magnitude — click any cell to drill into its factor-level detail.
- Category breakdown — P&L impact grouped by risk factor category (equities, rates, FX, commodities, credit, volatility, macro, inflation). Shows which asset classes drive the most impact.
- Factor-level detail — For each risk factor: the applied shock, your delta/gamma/vega exposure, and the resulting P&L components (delta impact, gamma impact, vega impact).
- Impact drivers chart — A ranked view of which risk factors contribute the most to total P&L impact, making it easy to identify the dominant risk drivers.
You can also use the configurable pivot table to slice and dice results across dimensions like portfolio, scenario, risk factor, and category.
Comparing Results
StressGen supports two types of comparison:
- Within a stress test — Compare different scenario-portfolio pairs within the same run to understand how the same portfolio responds to different scenarios, or how different portfolios respond to the same scenario.
- Across stress tests — Compare items from different runs to see how results change when you update portfolio snapshots or use different shock methodologies.
When comparing two items, the platform decomposes the P&L difference into two attribution components:
- Shock contribution — How much of the difference is due to different shock values (holding sensitivity constant).
- Sensitivity contribution — How much is due to different portfolio exposures (holding shocks constant).