Stress Testing 6 / 6

Stress testing

is a form of deliberately intense testing used to determine the stability of a given system, critical infrastructure or entity.

  • is a computer-generated simulation technique

  • often used in the banking industry

  • is used to assess the impacts of ‘what if’ events on key financial measures.

  • can also be used in non-financial companies

  • aims to quantify the risks an organisation faces 

    Examples:
    Cybersecurity attacks
    Foreign exchange rate risk

  • stress testing models are complex and are not easy to formulate

Example

The hospital carries out stress tests on a random sample of individuals. 

These stress tests are designed to determine the probability of the individual catching a virus.

The cost of the test is $10 per test.

Details on the individuals tested are as follows:

Number of individuals100,000
Ratio of stress tests to individuals1 to 20

What will be the cost for stress tests per individual?

  • Solution

    Total number of tests will be 5,000 (one for every 20 of the 100,000 accounts)

    The total cost for tests charged will be = 5,000 x $10 = $50,000.

    So on 100,000 individuals, this equates to $0.5 per individual ($50,000 / 100,000 = $0.5).

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