Surgical strikes on nuclear facilities. No Strait of Hormuz disruption. Oil spikes 10-20%, markets drop 1-5%, recover within a month.
Broader military campaign. Iran threatens Hormuz but does not close it. Oil spikes 25-40%. Markets drop 5-12%, elevated volatility for 2-3 months.
Iran retaliates with missile strikes on Gulf oil infrastructure. Hormuz temporarily disrupted. Oil spikes 50-80%. Markets drop 12-20%, 4-6 month recovery.
Negotiations succeed, strike called off or limited. Risk premium unwinds. Oil drops 5-10%, markets rally 1-3% on relief.
Regional war escalation. Proxy conflicts expand. Oil embargo on Western allies. Oil spikes 60-100%. S&P drops 15-25%, extended bear market for 6-12 months.
| Scenario | Probability | Median 1Y | 5th %ile | 95th %ile | Median Max DD |
|---|---|---|---|---|---|
| Limited Strike | 25% | +8.3% | -8.8% | +28.3% | -7.4% |
| Escalation | 20% | +5.3% | -15.3% | +30.4% | -9.2% |
| Full Escalation | 10% | -0.6% | -28.4% | +36.1% | -13.8% |
| Diplomatic Resolution | 35% | +13.2% | -3.1% | +32.7% | -7.2% |
| Prolonged Conflict | 10% | -6.6% | -43.4% | +53.6% | -22.7% |
Each scenario applies an initial shock drawn from N(mean, std), then simulates 252 trading days of GBM with elevated volatility during the recovery period. Normal daily volatility: 0.607% (from empirical regime rules). Crisis multipliers range from 1.5x (limited strike) to 3.0x (prolonged conflict). Mean reversion drift is added during recovery. 10,000 independent paths per scenario. Random seed fixed at 42 for reproducibility.