Market risk in the trading environment
Market risk in the trading environment concerns changes in the value of the trading books
as a result of factors including interest rates, credit spreads, foreign currencies and equities.
The trading books are located primarily in the departments Markets and Treasury.
Value at Risk by Group entity
in millions of euros
31 -Dec-14
Markets
2.8
Treasury 1.1
Other
0.0
Diversification
-0.7
Total
3.2
Risk management framework
An appropriate system of limits has been developed to manage market risk. The Executive
Board determines Rabobank's risk appetite and the related limits on an annual basis.
These limits are then translated into limits at book level and monitored on a daily basis by the
market risk departments.
Risk measurement
At a consolidated level, market risk is measured using Value at Risk (VaR), basis point sensitivity
and event risk.
The VaR, which is based on historical market developments for one year, indicates the maximum
loss that Rabobank can suffer, subject to a specific confidence level and horizon, under 'normal'
market conditions.
The daily management uses a confidence level of 97.5% and a horizon of 1 day. Under this
method, Value at Risk is calculated on the basis of historical market trends and the positions
ta ken.
In 2014, the VaR fluctuated between EUR 2.4 million and EUR 22.5 million, the average being
EUR 3.8 million. The VaR amounted to EUR 3.2 million as at year-end. This means that under
normal circumstances, losses on any single day can be expected not to exceed a maximum of
EUR 22.5 million, subject to a confidence level of 97.5%.
The one-off peak of EUR 22.5 million was due to a number of large benchmark transactions and
the issue of tier 2 bonds that coincided with a temporary tightness in liquidity in the market
and unfavourable movements therein. The market risk position that arose in this situation was
fully back to normal levels within a few days. Over the whole of 2014, including this peak period,
the VaR remained within the limit of EUR 40 million.
Value at Risk
in millions of euros
50
40
30
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov dec
Annual Report 2014 Rabobank Group
