medium · FRM Part 1 Foundations of Risk Management
An insurance company's ERM team is performing 'Reverse Stress Testing.'
Which of the following best describes their approach?
- Using Monte Carlo simulation to generate a single 99.9% Value-at-Risk figure for the whole firm.
- Applying a uniform ten percent shock to every individual risk factor in the model at once.
- Replaying the exact historical market conditions seen during the 2008 global financial crisis to check resilience.
- Identifying specific scenarios that would lead to the total exhaustion of the firm's regulatory capital.
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