This section provides some additional explanation of the revised methodology using dividend yields to estimate future growth rates. It explains the assumptions underlying the methodology, the choice of parameters to implement it, and how the methodology works for different types of PRIIPs. There is an open question regarding exactly what should be prescribed in the RTS (level 2) and what should be recommended in level 3 guidance (Q&A) produced by the ESAs.
The methodology for calculating probabilistic performance scenarios is based on the following assumptions:
• The expected return distribution for a PRIIP (or the assets underlying) can be approximated by a log-normal distribution [The Pricing of Options and Corporate Liabilities (Black and Scholes) – The Journal of Political Economy, Vol. 81, No. 3 (May Jun, 1973), pp. 637-654.]. A better estimate of a return distribution is given by a Cornish-Fisher [There are a number of functions which describe the probability of finding a
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