What is Reverse stress testing in FRM Part 1?

Starting from a failure outcome and working backward to identify scenarios capable of causing it. The goal is to expose hidden combinations and business-model vulnerabilities, not to forecast the most likely scenario.

Reverse stress testing

FRM Part 1 glossary · Valuation And Risk Models

Definition

Starting from a failure outcome and working backward to identify scenarios capable of causing it.

Reverse stress testing in plain English

The goal is to expose hidden combinations and business-model vulnerabilities, not to forecast the most likely scenario.

Practice Reverse stress testing

Within Valuation — Stress Testing & Scenario Analysis, which term matches this definition: “identification of scenarios…

Related FRM Part 1 terms

Backtesting
Basis
Basis point
Binomial option pricing model
Black-Scholes-Merton model
Coherent risk measure
Component VaR
Convexity
Delta
Duration (modified)

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