RT Journal Article SR Electronic T1 Value in Stress JF The Journal of Fixed Income FD Institutional Investor Journals SP 7 OP 18 DO 10.3905/jfi.2003.319349 VO 13 IS 2 A1 Gloria GonzáLez-Rivera YR 2003 UL https://pm-research.com/content/13/2/7.abstract AB Stress-testing as a risk management tool lacks scientific foundation, and, as the current practice goes, is completely subjective. Nevertheless, it is a mandatory practice to monitor capital adequacy of the government-sponsored enterprises, Fannie Mae and Freddie Mac. A rational approach to stress-testing argues for a conceptual shift in the current practice. Consideration of fixed stressful scenarios, as the regulation contemplates, is not an optimal practice. The measure of risk proposed here, value in stress (ViS), satisfies a set of rational axioms and allows assignment of a probability to the value under stress. This approach provides direct answers to the current limitations of stress-testing, as expressed by the Committee on the Global Financial System at the Bank for International Settlements, which recommends stress-testing for banking institutions.