BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA
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Financial Instruments<br />
LEVEL 2<br />
Valuation techniques Main assumptions Main inputs used<br />
JUNE 2010<br />
Fair value (Millions of Euros)<br />
• Debt securities<br />
Trading portfolio<br />
Debt securities 1,128<br />
Equity instruments 181<br />
• Equity instruments<br />
Present-value method.<br />
Calculation of the present value of financial instruments as the<br />
current value of future cash flows (discounted at market interest<br />
rates), taking into account:<br />
• Estimate of prepayment rates;<br />
• Issuer credit risk; and<br />
• Current market interest rates.<br />
• Net Asset Value (NAV) published recurrently, but not every<br />
quarter<br />
• Risk premiums.<br />
• Observable market interest<br />
rates.<br />
Other financial assets designated at fair value<br />
through profit or loss<br />
Debt securities 72<br />
Equity instruments 430<br />
Available-for-sale financial assets<br />
Debt securities 13,013<br />
Equity instruments 410<br />
• Derivatives<br />
Analytic/Semi-analytic Formulae<br />
For share, currency or commodity<br />
derivatives:<br />
• Monte Carlo simulations.<br />
For interest rate derivatives:<br />
• Black-Derman-Toy model.<br />
• HW 1 factor<br />
For credit derivatives:<br />
• Diffusion model.<br />
For share, currency or commodity derivatives:<br />
• Black-Scholes assumptions take possible convexity<br />
adjustments into account<br />
For interest rate derivatives:<br />
• Black-Scholes models apply a lognormal process for<br />
forward rates and consider possible convexity adjustments.<br />
Local volatility model: assumes a constant diffusion of the underlying<br />
asset with the volatility depending on the value of the underlying<br />
asset and the term.<br />
This model assumes that:<br />
• The forward rates in the term structure of the interest rate<br />
curve are perfectly correlated.<br />
These models assume a constant diffusion of default intensity.<br />
For share, currency or commodity<br />
derivatives:<br />
• Forward structure of the<br />
underlying asset.<br />
• Volatility of options.<br />
• Observable correlations<br />
between underlying assets.<br />
For interest rate derivatives:<br />
• Term structure of the<br />
interest rate curve.<br />
• Volatility of underlying<br />
asset.<br />
For credit derivatives:<br />
• Credit default swap (CDS)<br />
pricing.<br />
• Historical CDS volatility<br />
Other financial liabilities<br />
designated at fair value through<br />
profit or loss<br />
ASSETS<br />
1,651<br />
Trading derivatives 41,476<br />
Hedging derivatives 4,279<br />
LIABILITIES<br />
Trading derivatives 38,384<br />
Hedging derivatives 2,063<br />
66