Point 11 of Annex II, Methodology for the presentation of risk, defines the return over each period as
the natural logarithm of the ratio of the price at the market close at the end of the current per

Question

Point 11 of Annex II, Methodology for the presentation of risk, defines the return over each period as
the natural logarithm of the ratio of the price at the market close at the end of the current period to
the market close at the end of the preceding period. Is this definition applicable to define the
performance of the PRIIP over a certain sub-interval?

ESA Joint Committee (EBA, ESMA, EIOPA) · Accepted Answer

The use of log normal is more appropriate for certain calculation methodologies, including the Cornish-
Fisher expansion. In these cases, it is specified in the PRIIPs Delegated Regulation that log normal
returns shall be used (such as in point 11 of Annex II and point 18 of Annex IV). In other cases, where it
is not specified that log normal returns need to be used, such as the calculation steps in point 7 of Annex
IV of the PRIIPs Delegated Regulation for the unfavourable, moderate and favourable scenarios for
Category 2 PRIIPs, simple returns can be used. Regardless of the calculation method used, the impact
of return compounding effects need to be accurately considered when showing returns in the
performance scenarios (in accordance with point 44 of Annex IV of the PRIIPs Delegated Regulation).

Point 11 of Annex II, Methodology for the presentation of risk, defines the return over each period as the natural logarithm of the ratio of the price at the market close at the end of the current per

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