Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Table 46: Regulatory Capital for Market Risk. Regulatory Capital Internal model Standardised Total VaR 46 - 46 Stressed VaR 164 - 164 IRC 64 - 64 RWS - 0.2 0.2 Commodities (TCF) - 36 36 Total 275 36 311 Back testing EDTF24 Back testing is a risk management technique to evaluate the quality and accuracy of internal VaR models. In essence, back testing is a routine comparison of model generated risk measures (daily VaR) with the subsequent trading outcomes (hypothetical or actual Profit Loss). It is expected that the calculated VaR will be larger than all but a certain fraction of the trading outcomes, where this fraction is determined by the confidence level assumed by the VaR measure. Among others, the performance of the VaR model is dependent on the risk factors covered by the VaR framework, the accuracy of the methodology applied and on the quality of the market data used to generate the historical scenarios. Inaccuracies in these items can lead to an abnormal number of outliers which could be an indication of inadequate quality of the internal model. Another source for outliers are technical issues. Using back tests, the quality of the VaR model can be assessed, both in terms of the distributional assumptions, historical market data validation and transaction or position registration. In line with regulation, Rabobank uses the 99% confidence level, 1-day holding period VaR for the purpose of back testing. Back tests are carried out at consolidated level and at book level, using both actual P&L and hypothetical P&L. Back testing results are reported to the regulator on a quarterly basis. Outliers are reported and individually analysed if they exceed an operational threshold (50,000 for books with a VaR smaller or equal 500,000, and 0.15 times VaR for books with a VaR larger than 500,000). The number of outliers over a rolling window of one year determines an additional charge to the capital multiplier used on the VaR and stressed VaR in the RC calculation. If the number of outliers on consolidated level exceeds a given number based on the 99% confidence level of the VaR measure, a capital multiplier has to be applied. In 2016, there were 2 actual and 1 hypothetical P&L outliers which exceeded the consolidated VaR. On 31 December, there is no additional charge for Rabobank as the number of outliers was below the threshold of four CRR (CRD IV). Consolidated Financial Statements Company Financial Statements Pillar 3 Valuation The valuation of the trading portfolio positions is based on, or derived from, observable prices or curve inputs.The availability of observable prices or curve inputs varies by product and market, and may change over time. In some markets or for certain products, observable prices or inputs are not available, and fair value is determined using valuation techniques appropriate for the particular product.The data sources are consistent between various products and independent of any Rabobank activity. If in exceptional cases, in a start-up phase, curves are not independently maintained, a minimum of a monthly independent validation is a requisite. These curves will be subjectto a yearly review in orderto define if database providers have caught up with the market evolution and allow independent monitoring in the future.The department accountable for the valuation process is independent of the front office. Rabobank aims to include all liquid inputs of its valuation models as risk factors in its market risk models and to achieve maximum alignment between the valuation and risk models. For instance, for interest rate portfolios a large variety of forecasting and discounting curves are used to value the products within them. All these curves are treated as separate risk factors in the risk models. The historical yield curve data which is used to generate the historical scenarios for the VaR calculation is derived from the yield curves which are used to value the trades. By doing so Rabobank also aims to achieve maximum correlation between the actual profit or loss and hypothetical profit or loss figures. Stress testing EDTF2S Rabobank recognises that VaR, due to its underlying statistical assumptions, must be complemented by stress testing for a more complete risk assessment. Stress testing is used to measure events that are not captured by the VaR model. It is instrumental in gauging the impact of extreme, yet plausible predefined moves in market risk factors on the P&L of individual trading and investment portfolios. Rabobank designed a large number of global scenarios based on book composition and current macro/economic financial markets situations. Risk drivers captured by these scenarios include among other things: tenor basis swap spreads, interest rates, credit spreads, volatility and interest rate rotation.The shocks applied are determined using historical calibration or are based on expert judgment. The scenarios are global and homogeneous for all geographical regions. 355 9. Market risk

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Jaarverslagen Rabobank | 2016 | | pagina 356