MathConsult lectures PRIIPs in Wuppertal

On Dec. 13, 2018, Andreas Binder gave a guest lecture on PRIIPs at the Bergische Universität Wuppertal “The Mathematics of PRIIPs”.

Andreas Binder

With the European Regulation 1286/2014 and the Commission Delegated Regulation 2017/653, manufacturers of packaged retail and insurance-based investment products (PRIIPs) are required to equip their PRIIPs with key information documents (KIDs) describing the risk and the possible returns of these products on not more than 3 pages.

For so called category 2 instruments, the distribution of daily returns is based on their means, variance, skewness and curtosis and a Cornish-Fisher expansion. By doing so, fatter-tailed distributions are taken into account.

The plot shows the implied distribution derived form the Cornish-Fisher expansion for daily returns of the DAX between 2013 and 2017 (yellow line) compared to the normal distribution with the same variance (blue line). During this time period, Dax returns were left-skewed (skewness is negative) and fatter-tailed (excess kurtosis is positive).