  The quest for diversification has led to an increasing number of complex
funds with a high number of strategies and non-linear payoffs. The new
generation of Alternative Risk Premia (ARP) funds are an example that has been
very popular in recent years. For complex funds like these, a Reverse Stress
Test (RST) is regarded by the industry and regulators as a better
forward-looking risk measure than a Value-at-Risk (VaR). We present an Extended
RST (ERST) triptych approach with three variables: level of plausibility, level
of loss and scenario. In our approach, any two of these variables can be
derived by providing the third as the input. We advocate and demonstrate that
ERST is a powerful tool for both simple linear and complex portfolios and for
both risk management as well as day-to-day portfolio management decisions. An
updated new version of the Levenberg - Marquardt optimization algorithm is
introduced to derive ERST in certain complex cases.
