04-read-the-outputs.RmdThis vignette gives a brief overview of the files that are generated
by the climate transition risk stress test provided in
r2dii.climate.stress.test and proceeds to explain in depth
how to read the data in each of the files.
The source code generates three result (output) files after completing the transition or litigation risk stress test for a given set of parameters. They principally contain estimates of the market risk of companies in the portfolio and of the credit risk of said companies in a corporate loan book. The source code additionally outputs a log file which holds information on the settings of the current transition risk stress test run.
If the user follows the recommended data folder structure the output files will be found here:
example_project/
outputThe output files are:
Log file
Crispy output
Company trajectories
In this section, we look at each result file and what each of the variables they contain mean. The set of input parameters, common to all result files, is described at the end of the following list. Special attention at the end is also dedicated to the slight differences in the format of results created from a sensitivity analysis.
This is a text file that contains information on the settings of the stress test run that created the results files. The user can check on the:
input_path_project_) and
output (output_path) directories.This file contains
company_name: Name of the company that was
analyzed.sector: Sector of the production assets analyzed.business_unit: Name that highlights the use of the
carbon budget.company_name: Name of the company that was
analyzed.roll_up_type:scenario_geography: Region for which the analysis was
run. This refers to the location of assets considered as well as the
regional break down of the scenario targets used.baseline_scenario:shock_scenario:ldg:risk_free:discount_rate:dividend_rate:growth_rate:shock_year:net_present_value_baseline:net_present_value_shock:net_present_value_difference:term:pd_baseline: Probability of default under the baseline
scenario.pd_shock: Probability of default under the shock
scenario.pd_difference:This result file contains
scenario_name: Name that highlights the use of the
carbon budget compensation mechanism and the year of the introduction of
a transition policy.company_name: Name of the company that was
analyzed.year: Calendar year.scenario_geography: Region for which the analysis was
run. This refers to the location of assets considered as well as the
regional break down of the scenario targets used.ald_sector: Sector of the production assets
analyzed.ald_business_unit: The ald_business_unit can be
understood as a sub-sector. These must be in line with the technologies,
for which the scenarios provide production pathways.production_plan_company_technology:phase_out:production_baseline_scenario:production_target_scenario:production_shock_scenario:company_id: Unique company number, based on an Asset
Resolution classification.pd: Probability of default.net_profit_margin:debt_equity_ratio:volatility:price_baseline_scenario:price_shock_scenario:net_profits_baseline_scenario:net_profits_shock_scenario: Net Profits of a company
under shock scenario.discounted_net_profits_baseline_scenario: Discounted
net profits of a company under baseline scenario.discounted_net_profits_shock_scenario: Discounted net
profits of a company under shock scenario.baseline_scenario_arg: Name of the baseline
scenario.shock_scenario_arg: Name of the Shock scenario.lgd_arg: Loss given default applied in the calculation
of the expected loss. *risk_free_rate_arg the risk free
interest rate. Input parameter to the Merton credit risk model.discount_rate_arg the annual rate at which future cash
flows are discounted when calculating the net present value of companies
in the loan book. Since the net present values are indirect inputs into
the Merton credit risk model, this parameter my be relevant.growth_rate_arg the perpetual ‘economic’ growth rate
used in the discounted cash flow model for the calculation of terminal
value of each firm in end_year + 1. Must be positive and strictly
smaller than discount_rate.div_netprofit_prop_coef_arg coefficient that indicates
what share of the net present value should be considered to derive the
equity value of a company.shock_year_arg year in which the policy is introduced,
that adjusts the production values of companies to stay in line with
carbon budgets.scenario_geography_arg:start_year_arg:While there may be some redundancy to this information, it is there to ensure the results remain reproducible and straightforward for the user to understand given magnitudes in the model results. In the standard run of the stress test, with a single value specified for each input parameter, this implies that the argument columns just contain one value each (as opposed to sensitivity analysis where the user can set multiples values of input parameters).
Running a sensitivity analysis produces as many sets of results as the number of input parameters selected for the variable of interest.To keep the ensuing analysis as simple as possible, the results files are named with a suffix indicating the parameter that was varied in the particular run and saved in a new output folder. Apart from the indicative naming suffix the sensitivity analysis results files produced have the same format as described above but contain the results of multiple runs in a single file.
The variation is observed in the argument column of the parameter that was iterated over. Instead of just one value, it will contain values for every iteration of the sensitivity analysis, be it two or more.