DEFINITION of 'Sensitivity Analysis'
A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond's price.
Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s).
INVESTOPEDIA EXPLAINS 'Sensitivity Analysis'
Sensitivity analysis is very useful when attempting to determine the impact the actual outcome of a particular variable will have if it differs from what was previously assumed. By creating a given set of scenarios, the analyst can determine how changes in one variable(s) will impact the target variable.
For example, an analyst might create a financial model that will value a company's equity (the dependent variable) given the amount of earnings per share (an independent variable) the company reports at the end of the year and the company's pricetoearnings multiple (another independent variable) at that time. The analyst can create a table of predicted pricetoearnings multiples and a corresponding value of the company's equity based on different values for each of the independent variables.
VIDEO

Bond
A debt investment in which an investor loans money to an entity ... 
ZeroGap Condition
When a financial institution's interest ratesensitive assets ... 
Sensitivity
The magnitude of a financial instrument's reaction to changes ... 
Common Stock
A security that represents ownership in a corporation. Holders ... 
Duration
A measure of the sensitivity of the price (the value of principal) ... 
Capital Budgeting
The process in which a business determines whether projects such ...

Investing
What's a Sensitivity Analysis?
Sensitivity analysis is used in financial modeling to determine how one variable (the target variable) may be affected by changes in another variable (the input variable). 
Fundamental Analysis
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. 
Investing Basics
6 Terms To Warm The Coldest Wall Street Heart
There is plenty of love on Wall Street, even if it's all just words. 
Active Trading Fundamentals
Bet Smarter With The Monte Carlo Simulation
This technique can reduce uncertainty in estimating future outcomes. 
Fundamental Analysis
DoItYourself Analyst Predictions
Regular investors can build their own financial models using the mosaic theory. 
Fundamental Analysis
What is a Null Hypothesis?
In statistics, a null hypothesis is assumed true until proven otherwise. 
Investing
How to Use Stratified Random Sampling
Stratified random sampling is a technique best used with a sample population easily broken into distinct subgroups. Samples are then taken from each subgroup based on the ratio of the subgroup’s ... 
Fundamental Analysis
Lognormal and Normal Distribution
When and why do you use lognormal distribution or normal distribution for analyzing securities? Lognormal for stocks, normal for portfolio returns. 
Investing Basics
Using Normal Distribution Formula To Optimize Your Portfolio
Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk. 
Technical Indicators
The Normal Distribution Table, Explained
The normal distribution formula is based on two simple parameters  mean and standard deviation