Skip to content
All library documents

Understanding PRIIPs Category 2 Stress Scenario Calibration

Article Quant Q&A · Author: Apnurm
Read the original

Summary

The document discusses a question about calculating the PRIIPs stress scenario for a Category 2 investment product. The questioner has followed earlier steps in the regulatory risk and reward calculation but is unsure which historical data and value date ranges to use for stress volatility. The replies point to inconsistencies in the underlying dataset, including mismatched rolling volatilities and a switch from five years of history to two years in the examples.

The advice is to calculate rolling volatilities from the full dataset and then derive the one-year and longer-horizon stress volatilities from the appropriate portions of those results. The document gives no worked calculation, data values, or definitive resolution of the original spreadsheet discrepancy. Its main value is a warning to check dataset consistency and the chosen history range; it is not a complete step-by-step guide to PRIIPs stress scenario computation.

Key ideas

  • The question concerns choosing historical dates and ranges for Category 2 PRIIPs stress volatility.
  • The replies report inconsistencies in the source data and rolling volatility figures.
  • They recommend using the full dataset to calculate rolling volatilities.
  • The discussion does not provide a numerical worked example or fully resolve the spreadsheet calculation.

Tags

VolatilityRisk managementStatistics
Full text
# PRIIPs Stress Scenario for Category 2


# PRIIPs Stress Scenario for Category 2












I know this topic has been on the table before, but I haven't seen a clear explanation with an example. I have successfully calculated the previous steps in

https://esas-joint-committee.europa.eu/Publications/Technical%20Standards/JC%202017%2049%20(PRIIPs_flow_diagram_risk_reward).pdf

but I am now struggling with stress scenario calculation in pages 23-24. I have made a quick excel to show the calculation I have done. I don't know where I'm going wrong , but I'm quite close number wise (could be still a mile away from correct). A clear answer with used value dates and ranges would be much appreciated to point out where I'm wrong.

Here is a link to excel: https://www.dropbox.com/s/8htamga4mg92pf2/PRIIPS_EuroStoxx50_example.xlsx?dl=0

edit: Added more calculations in the excel above

## Answer by Matúš Košík (score 1)

https://quant.stackexchange.com/a/36996

I think they messed up with the dataset. The dates are weird and the rolling volatilities do not match. They suddenly take 2 year history instead of 5.

May I please ask why did you not take full columns for 1Y and 3Y stress volatilities? (the percentile() starts somewhere in middle of the column)

Thank you.

EDIT: You should use full dataset to calculate rolling volatilities and thus only 1Y and more than 1Y stress volatilities shall differ.(ESA's workshop in Frankfurt 27.11.2017, ESA's workshop ).

## Answer by Andrej Iring (score 0)

https://quant.stackexchange.com/a/37059

Yes in the dataflows there were some mixup (similar question with the answer) with the data for the stress scenarious. But for the other scenarious you should be able to get to the results with no problem. Also I would like to address you to the this question where you can find how you should address the rolling window and how to chose dataset for the stress scenarious.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.