FRM Part I · FRM Exam Part I · Stress Testing
Which use of stress test results is most consistent with integrating stress testing into a bank's risk appetite framework?
Using stress results to set limits and capital buffers so that severe-scenario losses stay within the board's risk tolerance best integrates stress testing into the risk appetite framework, because it makes the results drive actual risk-taking and capital decisions.
- ASetting risk limits and capital buffers so that losses under severe scenarios remain within toleranceCorrect
- BPublishing results externally before senior management reviews them
- CUsing results only to validate the VaR model's backtesting performance
- DDisregarding scenarios judged unlikely by the trading desk
Explanation
Linking stress losses to limits, buffers and risk appetite makes stress testing a management tool. Validating VaR is not its primary purpose, and dismissing scenarios because desks consider them unlikely undermines challenge.
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