Scenario and Stress Engine
Scenarios apply coherent shocks to market snapshots and revalue portfolios for risk and regulation.
Scenarios define joint shocks to risk factors, such as parallel rate shifts, equity crashes, or spread widens.
A stress engine transforms a base market snapshot according to a scenario and calls the pricing library for revaluation.
Regulatory and internal stress tests rely on consistent scenario definitions across desks and legal entities.
Efficient scenario engines batch valuations and reuse common precomputations to handle thousands of scenarios.
This diagram applies a joint stress scenario to three risk factors (equity, rates, credit) and shows the resulting stressed P&L. Use the presets and sliders to see how coherent factor shocks propagate through exposures into total stress loss.
A scenario is a vector of coherent shocks, not a pile of unrelated tweaks. The stress engine takes this vector, applies it to the market snapshot, and lets the pricing stack convert exposures into factor P&L and total loss.
The practitioner’s view: a good scenario engine makes it trivial to express regulatory and internal shocks as reusable objects and to run them across many portfolios. The key is consistency of factors (the axes) and deterministic wiring, so that “Equity crash” means the same thing everywhere and stress results can be compared across desks and time.