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Market risk

Risk quantification, management and reporting

All comdirect trading transactions have to comply with the requirements of the market risk strategy. We monitor market risks – especially interest rate risks and credit spread risks in the banking book – on a daily basis. A VaR model based on a holding period of one day and a confidence level of 97.5% is used for operational management. The assumptions in the model are regularly validated to verify the informative value of the VaR forecast.

To monitor extreme market movements and the extent of losses in the portfolio under worst case conditions, the VaR calculations are supplemented by operational stress tests, whereby possible scenarios such as reversals and shifts in various market price curves are simulated. In addition to interest rate, credit spread and currency scenarios, we also carry out daily stress test calculations for equity price risks in the special funds held by comdirect bank.

The method is described in detail in note (56).

Current risk situation

As of 31 December 2012, the VaR for market risk was €2.7m (end 2011: €4.3m) and fluctuated over the course of the year between €2.3m and €4.4m. At €111.0m (median), the overall stress value was considerably higher than in the previous year (€83.4m). The rise is due to the calculation method for the credit spread stress test from a standalone perspective which was refined during the reporting year. Through this we take account of the existing risk concentration of our Treasury portfolio in Commerzbank Group positions. The limits for all types of market risk were complied with consistently.

Market risks (in € thousand)

  As of end
of previous
year
As of end
of year
Year high Year low Median 2012 Median 2011
Total VaR 97.5%
1 day holding period*
4,348 2,689 4,443 2,257 3,518 5,263
Stress test – overall result 62,539 108,284 119,627 102,278 110,966 83,363
* Model see note (56)

As in the previous year, most of the market risk was attributable to credit spread risks. These continually declined over the course of the year, partly because the portfolio of bank bonds from stricken eurozone countries also reduced again as a result of selective sales and scheduled expiries. With regard to general market risks, the interest rate risk was the most important. Given the low level of exposure, equity price risk and currency risk continued to play a minor role.