Scenario approach estimates possible outcomes on the basis of expert assessments. In comparison to sensitivity analysis, several risk factors are considered at a time (multiattribute stress tests). Choice of the changing factors may be performed on the basis of historical data as well as hypothetical scenarios. The advantage of this type of a stress test is a more flexible formulation of possible events.

Algorithm for Scenario approach:

• Set the number of considered scenarios and probability for each of them
• Choose the set of variables (risk factors)
• On the basis of expert assessment define values of chosen factors for each scenario

Form of paramaters settings

On the bases of the calculated values for each scenario we can draw a distribution function for the analyzed resulting value (assuming a normal distribution law). Now some qualitative risk assessment is possible as well. For example, one can calculate Value-at-Risk (VaR) – a measure of maximum exposure to losses with a set probability.

Calculation results in the Excel sheet