# PRIIPs category 2 stress scenario - general question

Having calculated the 1Y stress scenario at certain dates on the Euro stoxx 50 series, I realise that it jumps during June 2017. As at 31/5/2017 I get 0.347660613, and as at 30/06/2017 I get 0.663384825.

Am I right in saying that the KID would show at the end of May that there is a stress risk of losing 65.23% over one year, while the KID at the end of June would show a stress risk of losing 33,66% over one year ?

Firstly, can someone indicate if my calculation is terribly wrong ?

Secondly, would financial advisors, clients, regulators be aware of the limitations of showing these scenario statistics at one single date, and without some interpretation ?

Regards.

• If you know it, expand on why the value jumps in your code please. It is unhelpful to effort spent to hunt down the cause your own workings. If you provide the judged reason for the jump in value, I will run a cross check on this tomorrow and post my own. – James Spencer-Lavan Oct 10 '17 at 18:57
• On 24 June 2016 the index lost 9.01%, which increased the 21 day volatility for the periods including that date (24/6/16 to 25/7/16) to above 0.025 . The observation points that look up these dates over 1Y show this increased value of volatility. From 26/6/17, one year after these observations, no other high volatility points are observed over 1Y, and 1Y stressed volatility returns to under 0.014, more often 0.011 to 0.01, even below 0.01 at end September. Since the 1Y scenario calculation is based on the 1Y stressed volatility, it is only logical that it improves as the volatility decreases. – Christian63 Oct 11 '17 at 7:58
• to be honest it is not clear to me the procedure that you follow. For the determination of Wσ_{s}, as r_{t} do you use the historical returns of RHP (1year in your case) or do you use the historical data of (at least) last2-year period (minimum daily data requirement – Peter92 Oct 12 '17 at 15:12
• @Peter92 to answer your question: For the 1 year stress scenario, for each day of the most recent year I calculate the volatility, using the excel formula for STDEV Pearson looking up the last 21 daily performance results (eg D24=STDEV.P(C3:C24) where C3=LN(B3/B2), C4=LN(B4/B3),…C24=LN(B24/B23)). The 1Y stress volatility is the value of volatility corresponding to the 99th percentile of all the 21 day volatility calculations over that last year. Hope this helps. (edited from previous answer) – Christian63 Oct 16 '17 at 7:06