SCENARIOPR

Calculate relative scenario probabilities across a set of economic outcomes.

Description

Calculate the relative probabilities of prospective economic scenarios. Employ this powerful statistical framework in your scenario analysis excercise. The function follows the research published in the Journal of Portfolio Management, March 2020.

Enhanced Scenario AnalysisThe Journal of Portfolio Management

Journal of Portfolio Management research paper: Enhanced Scenario Analysis

Syntax

The following describes the function signature for use in Microsoft Excel's formula bar.

=SCENARIOPR(estimates, anchor, covariance, j, isReturnDistance)

Input(s)

Argument	Description
estimates	Required. Matrix of scenario estimates where each column corresponds to a scenario and each row corresponds to an economic variable.
anchor	Required. Column vector of anchor estimates across economic variables.
covariance	Required. Covariance matrix of economic variables. We recommend that the covariance specification be aligned with deviations from the anchor selection.
j	Optional. Scalar value to model fatter tails. $j \leq 1$. If not specified, the function assumes that j is one and that multivariate normality across economic variables hold.
isReturnDistance	Optional. Logical (TRUE or FALSE). If TRUE, then the function will return Mahalanobis distance values across all scenarios, otherwise the function returns a vector of relative probabilities that sum to one. If not specified, the function defaults to FALSE.

Output(s)

The function returns a vector of scenario probabilities. When isReturnDistance is set to TRUE, the function returns the Mahalanobis distance of the scenario estimates relative to the specified anchor.

Example

48KB

SCENARIOPR.xlsx