This research bulletin is the first in a series covering various aspects of stress testing and scenario analysis. In this paper, we compare and contrast two historical scenarios that may be of current interest given the increasing uncertainty regarding the returns on sovereign fixed income investments. The scenarios we consider here are the 1998 Russian debt crisis and the 1994 US rate hike that followed the savings and loan (S&L) crisis. We put a stylized US pension plan through the stress tests using BarraOne, a risk platform that provides more than 60 preloaded historical scenarios from the 1970s to the present. Each scenario that we consider applies shocks to global market factors for equities, interest rates, credit spreads, FX rates, and commodities. We review the effect of the scenarios on the pension plan, and we discuss possible hedges.
Publication: MSCI Barra Research Bulletin
Authors: BRIAND Remy, MSCI Barra Applied Research , VANNEREM Philippe
