KB prezent. angl - Komerční banka

Methods for measuring market risk and defining limits
Komerční banka market risk assessment is based on three main indicators that are used to define exposure limits:
– Value at Risk historical simulation method, calculated to a 99% confidence level and one-day time scope, which allows the
Bank to consolidate its market risks into SG Financial Group’s Value at Risk.
– Stress-Test measurement, to take into account low probability events not covered by Value at Risk. The Bank performs
several types of stress tests for foreign exchange and interest rate exposures. Shock scenarios consist of very significant
movements in parameters, usually with a one-in-ten probability of occurrence. Another kind of Stress Test on interest rate
exposure is based on “what if” scenarios, where a flip of interest rate curves at pivot points is simulated.
– Complementary limits (sensitivity, FX position, credit spread risk, holding period, etc.). These limits monitor market risks
which are only partially captured by VaR and Stress Tests.
Value at Risk (VaR) method
The new VaR method (“historical simulation”) was implemented at Komerční banka in 2002 for foreign exchange and interest
rate risk. Last year, the Bank introduced this method for equity risk. It takes into account the correlation between all markets
and the characteristics, whereby the repeating of market parameters is not evenly distributed. Scenarios of one-day variations
of market parameters over a period of the last 250 business days are used. The 99% Value at Risk is the loss that would be
incurred after eliminating the top 1% most unfavourable occurrences; with 250 scenarios this corresponds to the average of
the second and third largest potential losses computed.
Back testing
The bank regularly reviews the accuracy of the model by back testing. Trading results are compared with modelled Value at
Risk to monitor the number of violations against the 99% confidence level. Back testing is applied globally as well as for each
risk category (foreign exchange, interest rate, equity). During 2003 no negative profit or loss exceeded the 99% VaR level.
The stress-tests risk exposures as of 31 December 2003 were as follows:
EUR
600,000
400,000
200,000
0
(200,000)
(400,000)
(600,000)
(800,000)
(1,000,000)
(1,200,000)
Profit & Loss
VaR
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII. 2003
Stress-test exposure (worst case) as at 31 December 2003
EUR
Foreign exchange downward relative shock (244,125)
Interest rate pivot risk (4,673,740)