Sensitivity analysis

Varying one input at a time, holding the rest fixed, to see how far the result moves. It shows which assumptions matter, but cannot show what happens when several go wrong together.

Where you will meet it

Sensitivity analysis appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain how sensitivity analysis is used in FCFF and FCFE valuation
  CFA Level II · Equities

  “Sensitivity analysis changes one input at a time, holding the others at their base values, to see how far the estimate moves.”

• Show how sensitivity analysis is applied
  CFA Level II · Portfolio Construction

  “Sensitivity analysis checks how a backtest or simulation result changes when inputs or assumptions change.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with S · Glossary