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How to Build a Stress-tested Strategy


How to Build a Stress-tested Strategy

Using previous, global disruptive events as examples, Emmanuel Verrier-Chouquette shares an article that provides sound advice for building strategies that are designed to withstand disruption. 

Like many others have pointed out since, the Brexit referendum, the rise of Donald Trump and the Brangelina break-up (!) left many voters, observers and institutional leaders shocked, dazed and confused in 2016.

While many have doubts about how much legs the stock rally has and the jury is still out on longer term impacts, the first shockwaves of at least 2 of these events were significant. According to our analysis, the VIX jumped by 45% overnight on June 23/24, 2016 (this is the Chicago Board Options Exchange’s Volatility Index, a popular gauge of expectations of stock market volatility over the next 30-day period). This is one of the top 5 one-day hikes and swings in its history since 1990. The index also rose by about 65% over slightly more than 2 weeks before the U.S. election, following news about Obamacare premium increases and the reopening of Clinton’s email server investigation, before swiftly tapering down to what is now its lowest level in over a decade.

What should be most striking, however, is that “surprises” like this are not all that surprising anymore. In fact, our review indicates that significant one-day swings in the VIX (defined as +- 25%) have become 5 times more frequent since the beginning of the Great Recession in August 2007. With upcoming elections in France and Germany and a U.S. President keeping everyone on their toes with hardball negotiation tactics at home and abroad, we would expect that volatility will spike again from its current low at some point in 2017 (it has already rebounded slightly in the few days it took to update this article.)


Key points include:

  • Understanding immediate impacts and risks
  • Challenging blindspots
  • Upgrading capabilities for the exponential world

Read the full article, Three tips for strategy in the exponential age, on LinkedIn.