The authors extended the standard paradigm for portfolio stress testing in two ways. First, they introduced a toolkit that enables investors to envision and administer extreme scenarios. The risk model is integral to the stress test. They demonstrated the substantial impact of using historical...

As university endowments face pressure to divest stocks of companies contributing the most to climate change, much of the public discussion has focused on the looming math of the environmental impact of a carbon-based economy. As endowments decide whether or not to divest or implement screens,...

In this article, we extend the standard paradigm for portfolio stress testing in two ways. First, we introduce a structured set of tools that enable investors to envision and administer extreme scenarios. We show how to take account of historical and hypothetical covariance matrices in scenario...