medium · FRM Part 1
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 99.9% Value-at-Risk figure.
- Applying a 10% shock to every risk factor simultaneously.
- Replaying the exact market conditions of the 2008 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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