Definition: A test of a model for pricing or risk management, using an extreme scenario or family of scenarios. Example: For example, you might price your portfolio, using market conditions at the time of the crash of 1987, or assuming a three-standard-deviation move in prices, or a 100-year move in the forward curve. Application: You can use a' stress test' to find out a model's breaking point. Pricing: As you move a European barrier call option's barrier away from the spot price, the option's value approaches that of an ordinary European call. Risk Management: Stress-testing of VaR systems is commonplace.
Barry Goldsmith
| APA | Barry Goldsmith. (2010). stress test. Retrieved September 22, 2026, from http://smartdefine.org/stress_test/definitions/1164370 |
| Chicago | Barry Goldsmith. 2010. "stress test" http://smartdefine.org/stress_test/definitions/1164370 (accessed September 22, 2026). |
| Harvard | Barry Goldsmith 2010, stress test, Smart Define, viewed 22 September, 2026, <http://smartdefine.org/stress_test/definitions/1164370>. |
| MLA | Barry Goldsmith. "stress test" 21 October 2010. Web. 22 September 2026. <http://smartdefine.org/stress_test/definitions/1164370> |