Value at Risk
Breakdown of Value at Risk
An appropriate system of limits has been developed to manage market risk. The Executive
Board determines Rabobank Group's risk appetite and the related limits on an annual basis.
These limits are then transposed into limits at book level and monitored on a daily basis by
the market risk departments. At a consolidated level, market risk is measured using Value at Risk
(VaR) and event risk. VaR, which is based on historical market developments for one year,
indicates the maximum loss that Rabobank Group can suffer, subject to a specific confidence
level, under 'normal' market conditions. In order to weigh the risk of'abnormal' market conditions
too, the effects of certain extreme events are also measured (event risks). To this end, historical
scenarios as well as hypothetical scenarios are analysed. Sensitivity analyses are also used.
In 2013, the VaR fluctuated between a minimum of EUR 3.5 million and a maximum of EUR 8.9
million, the average being EUR 6.4 million. During the reporting year, this figure stayed well
within the set limit, which was EUR 40 miiiion.This means that losses on any single day in 2013
can be expected not to exceed a maximum of EUR 8.9 million on the basis of historical market
movements, subject to a confidence level of 97.5%. Under this method, Value at Risk is
calculated on the basis of historical market trends and the positions taken.
in millions of euros
50
40
30
20
10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
The VaR can be also broken down into a number of risk components, the most important of
which are changes in interest rates and credit spreads. Opposite positions in different books
offset each other to a certain degree, resulting in a diversification benefit and reducing the total
risk. At year-end 2013, the consolidated VaR was EUR 3.9 (7.6) million. The decrease in the VaR
compared to 2012 was due to a reduction of the equity derivatives portfolio and a more stable
interest rate environment, as well as other factors.
in millions of euros
31-Dec-2013
Credit spread
1.7
Currency
0.6
Equities
0.7
Interest rates
3.6
Commodities
0.3
Diversification
-3.0
Total
3.9
Annual Report 2013 Rabobank Group
