Stress Testing

What Does Stress Testing Mean?
A simulation technique used on asset and liability portfolios to determine their reactions to different financial situations. Stress tests are also used to gauge how certain stressors will affect a company or industry. They are usually computer-generated simulation models that test hypothetical scenarios.

This is also known as a "stress test".

 

Investopedia explains Stress Testing
Stress testing is a useful method for determining how a portfolio will fare during a period of financial crisis. The Monte Carlo simulation is one of the most widely used methods of stress testing.

A stress test is also used to evaluate the strength of institutions. For example, the Treasury Department could run stress tests on banks to determine their financial condition. Banks often run these tests on themselves. Changing factors could include interest rates, lending requirements or unemployment.

Stress testing is the process of determining the ability of a computer, network, program or device to maintain a certain level of effectiveness under unfavorable conditions. The process can involve quantitative tests done in a lab, such as measuring the frequency of errors or system crashes. The term also refers to qualitative evaluation of factors such as availability or resistance to denial-of-service (DoS) attacks. Stress testing is often done in conjunction with the more general process of performance testing.
When conducting a stress test, an adverse environment is deliberately created and maintained. Actions involved may include:

• Running several resource-intensive applications in a single computer at the same time
• Attempting to hack into a computer and use it as a zombie to spread spam
• Flooding a server with useless e-mail messages
• Making numerous, concurrent attempts to access a single Web site
• Attempting to infect a system with viruses, Trojans, spyware or other malware.

The adverse condition is progressively and methodically worsened, until the performance level falls below a certain minimum or the system fails altogether. In order to obtain the most meaningful results, individual stressors are varied one by one, leaving the others constant. This makes it possible to pinpoint specific weaknesses and vulnerabilities. For example, a computer may have adequate memory but inadequate security. Such a system, while able to run numerous applications simultaneously without trouble, may crash easily when attacked by a hacker intent on shutting it down.
Stress testing can be time-consuming and tedious. Nevertheless, some test personnel enjoy watching a system break down under increasingly intense attacks or stress factors. Stress testing can provide a means to measure graceful degradation, the ability of a system to maintain limited functionality even when a large part of it has been compromised.
Once the testing process has caused a failure, the final component of stress testing is determining how well or how fast a system can recover after an adverse event.