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AcadiFi
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CFA_Candidate_20262026-04-13
frmPart IRisk Management and Investment ManagementValuation and Risk Models

When is single-factor sensitivity analysis sufficient versus when do you need a full multi-factor stress test?

I'm reviewing stress testing approaches for the FRM exam. The curriculum mentions single-factor sensitivity analysis as a starting point, but it's unclear when this approach is actually adequate for risk management decisions. My employer, a regional bank, currently only runs single-factor shocks on interest rates. Should we be doing more?

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AcadiFi TeamVerified Expert
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Single-factor sensitivity analysis isolates the impact of one variable while holding everything else constant. You shift interest rates by +/- 100bp, or oil prices by +/- 20%, and...

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#sensitivity-analysis#single-factor#stress-testing#multi-factor-risk