Financial Risk Management
Translate a stress scenario into loss
What happens if two exposures move against you at the same time?
Apply a coherent adverse scenario to each position and combine signed impacts. A stress test estimates severity under the scenario.
Scenario P&L ≈ sum of signed position impacts
Put all impacts on a signed basis: −6 − 9 + 4 = −11, in ₹ lakh.
A currency move costs ₹6 lakh and a bond position loses ₹9 lakh. Combined P&L is −₹15 lakh before liquidity effects.
Put all impacts on a signed basis: −6 − 9 + 4 = −11, in ₹ lakh.
A hedge gains ₹4 lakh under the same scenario. What is net P&L?