Good evening
This is where I am currently at with regards to calculating the sub interval details.
I have split the calculation into 2 steps, firstly I am taking the return for date x minus the average of date x to date y (for the RHP 1 year using 21 days) so for example, if my first return date was 20/09/2016, I would average the returns for 20/09/16-18/10/16 and power the result to 2 (ie (rti-M1)^2).
The second aspect is the wtiσs, which I have calculated as the Sum of the above results for 20/09/16-18/10/16 divided by the sub interval of 21 then square rooting that result.
Finally, I take the 99th percentile of the results.
However, using the ESMA guidelines and recently released flow diagram, I am unable to come up with the same results.
There appears to have been some discussion on whether or not you should use the latest years worth of data for the 1 year or if you should be using the full data set. Personally I believe it should be the full data set otherwise if the latest years data had lower volatility you wouldn't see the full effect of the stress over a bad years data set.
However, if this was the case, then why is the 3 and 5 year RHP stressed volatility different when they both use the same sub-interval and in theory the same full data-set.
Can anyone help me understand where I am going wrong and/or point me in the right direction please as I have managed to work everything else out and whilst I can get to within 4-5 decimal places of the ESMA results, the next step pushes the final figure for the stress scenario even further out (it works if I manually type in the figures for Wσs√N from ESMA) so I know that the last bit is not incorrect.
Apologies for the long question.
