mlsanityData to 14 Oct 2026

LLM-Generated Counterfactual Stress Scenarios for Portfolio Risk Simulation via Hybrid Prompt-RAG Pipeline

arXiv 2512.07867 ↗First posted 26 Nov 2025q-fin.RM cs.AI econ.EMcited by 0

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Abstract (arXiv)

We develop a transparent and fully auditable LLM-based pipeline for macro-financial stress testing, combining structured prompting with optional retrieval of country fundamentals and news. The system generates machine-readable macroeconomic scenarios for the G7, which cover GDP growth, inflation, and policy rates, and are translated into portfolio losses through a factor-based mapping that enables Value-at-Risk and Expected Shortfall assessment relative to classical econometric baselines. Across models, countries, and retrieval settings, the LLMs produce coherent and country-specific stress narratives, yielding stable tail-risk amplification with limited sensitivity to retrieval choices. Comprehensive plausibility checks, scenario diagnostics, and ANOVA-based variance decomposition show that risk variation is driven primarily by portfolio composition and prompt design rather than by the retrieval mechanism. The pipeline incorporates snapshotting, deterministic modes, and hash-verified artifacts to ensure reproducibility and auditability. Overall, the results demonstrate that LLM-generated macro scenarios, when paired with transparent structure and rigorous validation, can provide a scalable and interpretable complement to traditional stress-testing frameworks.

Key facts. No citing papers in the map yet (data through 14 Oct 2026). Builds on 14 of its 79 references that are in the map. First posted on arXiv 26 Nov 2025.

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References · 14

  1. 2023Self-RAG: Learning to Retrieve, Generate, and Critique through Self-Reflectioncited by 1,839
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  11. 2024A Reproducibility and Generalizability Study of Large Language Models for Query Generationcited by 10
  12. 2021Scenario generation for market risk models using generative neural networkscited by 7
2 more
  1. 2025Secure coding for web applications: Frameworks, challenges, and the role of LLMscited by 3
  2. 2023Risk factor aggregation and stress testingcited by 2

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