CrashMetrics

From WilmottWiki

CrashMetrics is a methodology for evaluating portfolio performance in the event of extreme movements in financial markets.

The key features in this stress testing methodology are

• the portfolio of financial instruments is valued under a worst-case scenario with few assumptions about the size of the market move or its timing.
• The only assumptions made are that the market move, the crash, is limited in size and that the number of such crashes is limited in some way.
• There are no assumptions about the probability distribution of the size of the crash or its timing.

References

• Hua, P 1997 Modelling stock market crashes. Dissertation, Imperial College, London
• Hua, P & Wilmott, P 1997 Crash courses. Risk magazine 10 (6) 64-67 (June)
• Wilmott, P 2006 Paul Wilmott On Quantitative Finance, second edition. John Wiley & Sons