Risk Management
Scenario Analysis
Definition
What is Scenario Analysis?
The estimation of outcomes under a defined combination of assumptions.
Example in practice
How This Looks in Practice
An analyst models high inflationA sustained increase in the general price level, reducing the purchasing power of money., currency depreciationA market-driven decrease in a currency's value relative to another., and slower growth together.
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Related Terms
Risk Management
Stress Test
An analysis of portfolio performance under severe but plausible scenarios.
Risk ManagementSensitivity Analysis
The study of how an output changes when one input changes.
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The risk that managing too closely to or too far from a benchmark produces undesirable results.
Portfolio TheoryCapital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.