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Market risk

Risk management, quantification and reporting

All trading transactions of the comdirect group have to comply with the requirements of the market risk strategy. We monitor market risks – especially interest rate risks and credit spread risks in the banking book – on a daily basis. A VaR model based on a holding period of one day and a confidence level of 97.5% is used for operative management. The assumptions in the model are regularly validated to verify the informative value of the VaR forecast.

To monitor extreme market movements and the extent of losses in the portfolio under worst case scenarios, the VaR calculations are supplemented by operational stress tests, whereby possible scenarios such as reversals and shifts in various market price curves are simulated. In addition to interest rate, credit spread and currency scenarios, daily stress test calculations are also carried out for equity price risks in the special funds held by comdirect bank.

The method is described in detail in note (56).

Current risk situation

As of 31 December 2011, the VaR for market risk was €4.3m (end 2010: €2.7m) and fluctuated over the course of the year between €4.2m and €6.8m. On a comparable basis (excluding credit spread risks from intragroup securities), the VaR declined slightly. At €83.4m (median), the overall stress value was considerably higher than in the previous year (€17.5m). This results from a methodical expanding of the market risk measurement method by including credit spread risks from intragroup securities. However, over the course of 2011, the utilisation level of the market risk limits in the stress scenario declined. This was due to the overall drop in interest rate and credit spread sensitivities resulting from active portfolio management. The limits for all types of market risk were complied with consistently.

Market risks (in € thousand)

  As of end of previous year As of end of year Year high Year low Median 2011 Median 2010
* Model s. Note (56).
Total VaR 97.5 % 1 day holding period* 2,745 4,348 6,824 4,238 5,263 3,971
Stress test – overall result 14,886 62,539 113,421 62,151 83,363 17,508

As in the previous year, most of the market risk was attributable to credit spread risks. However, despite the renewed substantial increase in spread volatilities, there was only a moderate rise in credit spread risks over the year because the portfolio of debt securities from banks in debt-stricken eurozone countries had been further reduced through selective sales and scheduled expiries. With regard to general market risks, the interest rate risk was the most important and development in this item was largely stable. Volatile share prices in the equity markets led to higher equity price risks in our risk model but because of the low volume of the equity position these risks continued to play a minor role. As most investments are in euros, currency risks were of minor importance as well.