Research

Stress Testing Best Practices

Author: Iulian Cotoi and Robert Stamicar

Previously, we have discussed how optimization techniques can help fixed-income managers construct portfolios, and how stress testing should be part of an optimization framework that includes hedges and overlays. Whether embedded in an optimization framework or not, stress tests are critical from a risk management perspective. This note, which outlines common stress testing techniques along with some best practices, is our first installment in a series of notes involving stress tests.

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