What is Scenario analysis in FRM Part 1?

Revaluing exposures under a coherent set of hypothetical changes in risk factors and business conditions. Scenario analysis captures interactions and nonlinearities that a one-factor sensitivity or historical quantile can miss.

Scenario analysis

FRM Part 1 glossary · Valuation And Risk Models

Definition

Revaluing exposures under a coherent set of hypothetical changes in risk factors and business conditions.

Scenario analysis in plain English

Scenario analysis captures interactions and nonlinearities that a one-factor sensitivity or historical quantile can miss.

Practice Scenario analysis

Within Valuation — Stress Testing & Scenario Analysis, which term matches this definition: “evaluation of portfolio or…

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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