Stress testing / Liquidity and funding risk [17]

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Bullet points include: Often limited guidance given on how to determine them Firms often try to identify worst case scenarios either through expert judgement or statistical estimation Can be implemented by sequentially changing each factor by a given amount Akin to nested stress tests Leads to scenarios on the surface / far corner of a (multi-dimensional) cuboid With non-linear exposures, worst loss may be lower in interior of cuboid (or dramatically worse just outside it) Consider multiple points within / on cuboid, but then numerically intensive?

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