Out of the comfort zone

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Stress testing is considered by many risk managers to be a useful supplement to other, more quantitative risk measures, such as value-at-risk. By taking a variety of core scenarios, such as the 1987 stock market crash and the Russian debt default of 1998, banks have been able to determine how their own portfolios and hedges would be affected by similar shifts in market variables.

Since the financial crisis struck in the third quarter of 2007, however, regulators have criticised the use of stress

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