Editing Scenario planning (section)

=== Finance ===
{{further|Financial risk management#Banking|Valuation using discounted cash flows#Determine equity value|Corporate finance#Sensitivity and scenario analysis}}
In [[economics]] and [[finance]], a [[financial institution]] might use scenario analysis to forecast several possible scenarios [[Economic forecasting|for the economy]] (e.g. rapid growth, moderate growth, slow growth) and for financial returns (for bonds, stocks, cash, etc.) in each of those scenarios.  It might consider sub-sets of each of the possibilities.  It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any).  Then it will be in a position to consider how to distribute assets between asset types (i.e. [[asset allocation]]); the institution can also calculate the scenario-weighted expected return (which figure will indicate the overall attractiveness of the financial environment). It may also perform [[stress testing]], using adverse scenarios.<ref name="hassani2016">"Scenario Analysis in Risk Management", Bertrand Hassani, Published by Springer, 2016, {{ISBN|978-3-319-25056-4}}, [https://www.springer.com/gp/book/9783319250540]</ref>

Depending on the complexity of the problem, scenario analysis can be a demanding exercise.  It can be difficult to foresee what the future holds (e.g. the actual future outcome may be entirely unexpected), i.e. to foresee what the scenarios are, and to assign probabilities to them; and this is true of the general forecasts never mind the implied financial market returns.  The outcomes can be modeled mathematically/statistically e.g. taking account of possible variability within single scenarios as well as possible relationships between scenarios. In general, one should take care when assigning probabilities to different scenarios as this could invite a tendency to consider only the scenario with the highest probability.<ref name="schwartz1996">''The Art of the Long View: Paths to Strategic Insight for Yourself and Your Company'', Peter Schwartz, Published by Random House, 1996, {{ISBN|0-385-26732-0}} [https://books.google.com/books?id=fILtwg777hsC  Google book]</ref>