0
$\begingroup$

I have not been able to get to the results of the stress scenarios. I am using the series suggested between 1.05.2012 and 1.05.2017 where I have 1283 daily values including both dates. My steps in excel are the following:

  1. Since there are 5 years of daily prices , I calculate, for each possible day, the log normal performance on 63 days. For example in cell C65 =LN(B65/B2), then in C66 =LN(B66/B3), then in C67 =LN(B67/B4), until C1284 =LN(B1284/B1221). This makes 1282 - 63 = 1220 observations of returns. The average return of the observations is +2.26%.

  2. In column D I calculate the difference between the return and the average return, so in D65 = -0.24% - 2.26% = -2.49%, in D66 = +2.16% - 2.26% = -0.1% and so on until in D1284 = 8.71% - 2.26% = 6.45%.

  3. In column E I raise the results from each cell of column D to square. The column total is 6.01199142.

  4. I divide this by 1220, to obtain 0.004927862.

  5. I get the square root of this to get to the standard deviation and I obtain 0.07019873. This is very different than 0.017152366 indicated on page 24 of the flow diagram document.

So I am obviously missing something. Can someone please lead me in the right direction ?

Thank you.

$\endgroup$
  • $\begingroup$ Believe this has been answered elsewhere on here. Assume you searched under "PRIIPs" first, right? $\endgroup$ – James Spencer-Lavan Oct 6 '17 at 6:05
  • $\begingroup$ Indeed I had searched under PRIIPS, but the steps were not very clear to me as you could see. $\endgroup$ – Christian63 Oct 6 '17 at 7:43
1
$\begingroup$

This is how I understand it. You first check the recommended holding Period for your fund. If it is bigger than 1 Year and you have daily prices you will have sub intervals of 63 observations as you say. However you compute the returns daily as usual (e.g. Ln(B2/B3)) and you take a rolling window for the standard deviation Estimation of 63 Variables (e.g. St.dev(C2:C64,C3:C65...etc). From this series of Standard deviations you take the different percentiles. This approach will lead you to reasonable outputs.

Hope this helps

$\endgroup$
  • $\begingroup$ This is very helpful, and I have been able to calculate the 5Y stressed volatility at the 90th percentile, which is the exact same as in the example. Now headed for the rest of calculations... Many thanks David. $\endgroup$ – Christian63 Oct 6 '17 at 7:47
  • $\begingroup$ Please mark the answer as accepted if it solved you’re problem @Christian63 $\endgroup$ – Bob Jansen Oct 6 '17 at 16:03

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.