Citation :

Sunil Prabhakar, Kamal Pandey, 2026. "Portfolio Resilience Modeling Under Extreme Market Conditions" ESP International Journal of Science, Humanities & Management Studies(ESP-IJSHMS)  Volume 4, Issue 2: 42-56.

Abstract :

Traditional portfolio risk models often rely on historical return distributions and relatively stable correlation assumptions, which may underestimate risk during severe systemic crises characterized by interconnected shocks, nonlinear asset responses, liquidity deterioration, and volatility clustering. This study develops a resilience oriented framework for assessing portfolio behavior under extreme market conditions by integrating stress testing, tail-risk measurement, dynamic correlation analysis, liquidity assessment, and post-shock recovery modeling. Portfolio resilience is evaluated in terms of an investment portfolio’s capacity to absorb severe financial shocks, maintain acceptable risk-adjusted performance, preserve sufficient liquidity, and recover following high-impact market disruptions. The proposed framework employs scenario-based simulations representing extreme events, including market crashes, volatility spikes, interest-rate curve shocks, credit events, abrupt price jumps, and liquidity crises. It also considers contagion effects across asset classes to capture the interconnected nature of financial markets during periods of systemic stress. Portfolio resilience is assessed using multidimensional measures, including maximum drawdown, expected shortfall, recovery duration, liquidity-adjusted losses, concentration exposure, and post-shock recovery efficiency. Rather than examining market, credit, liquidity, and behavioral risks independently, the framework integrates these risk dimensions to provide a more comprehensive assessment of portfolio vulnerability. The study further emphasizes the importance of evaluating not only the magnitude of immediate losses but also the portfolio’s capacity to stabilize and recover following extreme events. This integrated modeling perspective provides portfolio managers, institutional investors, and financial institutions with a systematic approach for identifying vulnerabilities, strengthening stress-testing practices, designing adaptive asset-allocation strategies, and supporting risk-informed decision-making during periods of unprecedented financial market disruption.

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Keywords :

Portfolio Resilience, Extreme Market Conditions, Stress Testing, Tail Risk, Expected Shortfall, Dynamic Correlation, Liquidity Risk, Volatility Clustering, Systemic Risk, Portfolio Recovery.