The act of simulating different financial market conditions for their potential effects on a portfolio of financial instruments.
Using a variety of scenarios and assumptions, the value of a given position in derivatives and hybrids is put through a sensitivity test (a stress test) to determine the loss exposure of the firm to changes in market conditions.
Sensitivity analysis of a loan portfolio to learn how it would perform under different scenarios (i.e. high delinquency and high margins, high delinquency and rapid prepayment, etc.).