Market-Driven Scenarios: An Approach for Plausible Scenario Construction

摘要

In Market-Driven Scenarios: An Approach for Plausible Scenario Construction, from the Spring 2018 issue of The Journal of Portfolio Management, authors Bennett Golub, David Greenberg, and Ronald Ratcliffe (all of BlackRock) explain the need for scenario analysis as part of a firm's overall approach to risk management, and they describe a framework for conducting rigorous and systematic scenario analysis. A key challenge in applying scenario analysis is constructing "tail event" scenarios that are severe but plausible. The authors address that challenge by providing a quantitative framework for assessing a scenario's plausibility by reference to the behavior of observable variables used to define the scenario (e.g., asset prices, bond yields, credit spreads, etc.). Different quantitative implementations of the framework naturally produce somewhat different results, but those differences can themselves offer a vehicle for understanding the dimensions of sensitivity associated with a particular scenario definition. The authors conclude with an illustration of the framework's application using Brexit as an example.