PRIIPs Category 2 Stress Scenarios and Inconsistencies in Published Examples
Summary
The document examines how to reproduce the stress performance scenario in a PRIIPs key information document example for a category 2 product. The questioner reports being able to match the other scenarios from the stated return dataset but finding differences in the stressed results, including volatility figures across holding periods that appear inconsistent with the described method. An edit reports that the longer-period stress volatilities should match and that rolling-volatility calculations should use the full dataset.
The accepted response points to apparent errors in the supervisory example, citing inconsistencies in another category's stress calculation, including the data span, return dates, rolling-window length, and volatility values. It advises relying on the regulatory technical standards for the stress scenario until the example is corrected. This is a troubleshooting discussion, not a complete reconstruction: it gives no corrected dataset or worked calculation, and its claims concern a historical example and guidance state rather than a universal calculation recipe.
Key ideas
- The question concerns reproducing a PRIIPs category 2 stress scenario from historical returns.
- The reported discrepancies involve stress volatility across holding periods and rolling-volatility calculations.
- The answer identifies apparent data and calculation inconsistencies in a related supervisory example.
- The response recommends consulting the regulatory technical standards while the example remains unreliable.
- No complete corrected calculation is provided.
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Full text
# PRIIPs category 2 stress scenario methodology # PRIIPs category 2 stress scenario methodology recently new document has been provided by EU supervisors regarding the new PRIIPs KID methodology. (PRIIPs KID is 3page document about the fund/product that is being sold to clients. It has to inform about scenarios and risk of the investment) This new document include examples of calculation and my question is regarding the stress performance scenario for category 2 PRIIPs, which is on page 23 and 24. I tried to reconstruct this example and was successful with all other scenarios except the stressed. That means that I should have same dataset as they have. However my results for stressed scenario are slightly shifted. Moreover the stressed volatilities (red bold on page 24) are different for 3 and 5 holding period, which does not correspond to the methodology on page 23. The formula for stressed volatility is based on historical data only and should NOT depend on the holding period, aside from 1 year period which is special. So my question is: - Why are the stressed volatilities for 3 and 5 holding period different? - Is anyone able to reconstruct their numbers precisely? If code or excel is needed I can share, however I do not know how to share datasets here. Thank you. EDIT Requested info about the dataset. - Remove two NAs After there should be 1280 observed returns (1281 prices). For favourable, unfavourable and neutral scenario I get 1e-10 (rounding) error. EDIT 3Y and 5Y stress volatilities should be equall, as I found out in slide 26 of presentation from the latest ESA's workshop 27.11.2017 in frankfurt. Which means full dataset should be used for rolling volatilities. ## Answer by Andrej Iring (score 1, accepted) https://quant.stackexchange.com/a/35777 Well probably it is some sort of mistake on EU supervisor side because if you look at stress scenario for Cat 3 in that document you will find that it's just nonsense. For example they are using only 2Y (which is the RHP in their example) of data but they should use full 5Y. Next if you look at the returns (page 31) the first nine returns are corresponding to the dates on the left but the other returns and even rolling vol. are not (the last return is for 28.3.2017 not 27.1.2017 as they are presenting). Furthermore the volatilities they calculated are wrong. The last five volatilities are rolling volatilities for 22.3.2017 to the 28.3.2017 and the rolling window is not 63 (as it should be due to RHP is 2Y) but 21. And the first volatilities well I don't know how they calculate them I have try to reproduce them from data but I was not successful. So that is that, they probably publish corrected document but until then you should rely only on RTS when it comes to the stress scenario.
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