Value at Risk Mapping

Value at Risk (VaR)
Mapping to VaR:
from Products to PVT/EQT
Software Release 5
Document Title Mapping to VaR: from Products to PVT/EQT, Software Release 5
Version 1.0
Status Final
Author Information Alexandre Riesch/Isidore Marcus/Michael Heintze/Marc Nunes/Glenys Lynn
Date Last Revised December 15, 1997

Mapping to VaR: from Products to PVT/EQT Page 2
MAPPING Version 1.0 December 15, 1997
I. INTRODUCTION 6
I.1 THE EQUITY POSITIONS FILE (EQT) 6
I.2 THE POSITION VALUES FILE (PVT) 6
I.3 POSITION RISK CODE AND POSITION VALUE 7
I.4 SPLITTING 8
I.5 THE P&L MATRIX (LOOKUP TABLE) 9
II. FOREIGN EXCHANGE 10
II.1 CURRENCY SPOT 10
II.2 CURRENCY FORWARD/FUTURE 12
II.3 CURRENCY OPTION 14
III. INTEREST RATE 16
III.1 GOVERNMENT BOND 17
III.2 CORPORATE BOND 19
III.3 BOND FUTURES 20
III.4 SWAP 21
III.5 EMERGING MARKET BOND 22
III.6 OPTION 23
III.6.1 CAP/FLOOR 23
III.6.2 SWAPTION 24
III.6.3 OPTION ON GOVERNMENT BOND 25
III.7 MORTGAGE BACKED SECURITIES 26
IV. EQUITY 28
IV.1 EQUITY BETAS 28
IV.1.1 Beta Source 29
IV.2 CASH PRODUCTS 29
IV.2.1 CASH EQUITY 29
IV.2.2 SWISS CERTIFICATES, ADRs, GDRs 30
IV.2.3 EQUITY INDEX SPOT 32
IV.3 FORWARD/FUTURE 33
IV.3.1 STOCK FORWARD/FUTURE 33
IV.3.2 STOCK INDEX FORWARD/FUTURE 34
IV.4 OPTION 35

IV.4.1 STOCK OPTION 35
IV.4.2 STOCK INDEX OPTION 36
IV.5 CONVERTIBLE 37
V. COMMODITY 38
V.1 PRECIOUS METAL 39
V.1.1 PRECIOUS METAL SPOT 39
V.1.2 PRECIOUS METAL FORWARD / FUTURE 40
V.1.3 PRECIOUS METAL OPTION 42
V.2 BASE METAL AND ENERGY 43
V.2.1 BASE METAL AND ENERGY FORWARD / FUTURE 43
V.2.2 BASE METAL and ENERGY OPTION 46
VI. SIMULATION BASED VALUE-AT-RISK AND NON-LINEAR RISK 47
VI.1 REPORTING P&L MATRICES FOR VALUE-AT-RISK CALCULATION 48
VI.1.1 WHO REPORTS P&L MATRICES ? 48
VI.1.2 AVOIDING DOUBLE COUNTING OF LINEAR POSITIONS 48
VI.1.3 LEVEL OF CALCULATION/ORGANIZATION 48
VI.1.4 THETA (TIME DECAY) 48
VI.1.5 GUIDELINES FOR MARKET SHOCKS (GRID SPACING) 48
VI.1.6 TERM STRUCTURE OF IMPLIED VOLATILITY 48
VI.1.7 SPECIFICATION OF THE LOOKUP TABLE BY PRODUCT GROUP 49
VII. GENERATING THE FEEDER FILE 50
VII.1 USING THE STATIC DATA EXTRACTION UTILITY 50
VII.1.1 POSITION RISK CODES NAMING CONVENTIONS 51
VII.1.2 RISK SENSITIVITY TYPE 53
VII.1.3 CURRENCY OF THE TIME SERIES 53
VII.1.4 MATURITY OF THE POSITION RISK CODE 53
VII.1.5 PRODUCT 54
VII.1.6 CURRENCY TO WHICH THE POSITION RISK CODE PERTAINS 56
VII.1.7 MATURITY IN MONTHS 56
VII.1.8 RATING OF THE CORPORATE ISSUING THE BOND 56
VII.1.9 TIME TO EXPIRATION OF THE OPTION 56
VII.1.10 REFERENCE CURRENCY IN CCY PAIR 56
VIII. GENERAL PRINCIPLES OF THE DATA FEED LOADERS 57
VIII.1 ENFORCING UNIQUENESS OF THE PVT/EQT POSITION 57
IX. SPECIFICATION FOR LOADING DATA INTO THE PVT TABLE 58
IX.1 DETAILED INFORMATION ABOUT THE PVT FILE 58
IX.2 POSITION VALUE CURRENCY CONVENTIONS 59
X. SPECIFICATION FOR LOADING DATA INTO THE EQT TABLE 60
X.1 DUMMY ISIN CODES 61

X.2 DEFAULT ISIN CODES FOR THE LOCATIONS 62
X.3 DETAILED INFORMATION ABOUT THE EQUITY POSITIONS FILE 63
X.4 AGGREGATION OF INPUT RECORDS 63
X.5 EQUITYBETAS AND EQUITY INDICES 63
XI. THE FX RATES FILE 64
XI.1 FILE LAYOUT 64
XI.2 ADDITIONAL SOURCE FOR EXOTIC FX RATES IN ZURICH 64
XI.3 SUMMARY OF THE “UNDERLYING CURRENCY” CONCEPT 64
XII. COLLECTION OF EQUITY BETAS 65
XII.1 DELIVERING EQUITY INFORMATION TO THE VAR SYSTEM 65
XII.2 MAINTAINING THE LIST OF ISINS AND DUMMY CODES 65
XII.3 HOW EQUITY INFORMATION IS DELIVERED 65
XII.4 FILE FORMAT FOR NEW RECORDS OR UPDATES 66
XII.5 FILE NAME SPECIFICATIONS 66
XII.6 BETA SOURCE CODES 67
XII.7 VALIDATION RULES 67
XII.8 BETA UPDATE FREQUENCY 67
XII.9 WHICH COUNTRIES DOES EACH LOCATION HAVE AUTHORITY OVER ? 68
XII.10 VALID COMBINATIONS OF COUNTRY CODE AND EQUITY INDEX 69
XII.11 SETTING THE BETA FEEDIDS AND THE BETA FEEDER CONTACTS 70
XII.12 NEW SET OF DUMMY ISINS USING THE COUNTRY CODE 70
XII.13 EQUITY SECTOR BREAKS 71
XII.14 FILE FORMAT FOR NEW SECTOR BREAK UPDATES 71
XII.15 SECTOR BREAK FILE FORMAT 71
XII.16 VALIDATION RULES FOR THE SECTOR BREAKS 71
XII.17 VALID MSCI EQUITY SECTORS CODES FROM BARRA 72
XIII. BANKING HOLIDAY PROCEDURE 73
XIII.1 INSURING A COMPLETE SET OF TRADING POSITIONS 73
XIII.2 DELIVERING HOLIDAY INFORMATION TO THE VAR SYSTEM 73

XIII.3 EXAMPLE OF GENERATING A HOLIDAYS INPUT FILE USING EXCEL 74
XIV. TESTING A NEW FEED 74
XV. REMOTE BANK DATAFEED 75
XVI. ADJUSTMENT (VAR CONTROLLER) FEED 75
XVII. WHO’S WHO IN VAR 76
XVIII. VAR FEEDS 77
XIX. IT TERMINOLOGY 82
XX. BUSINESS NAMING CONVENTIONS 83
XXI. REFERENCES 90

Modification History
Version 1.0 of the ‘Mapping to VaR’ document includes the non-linear part of the Value-at-Risk System (P&L matrices
delivery) which was introduced with Release 5.0 on November 4, 1997.
I. INTRODUCTION
The VaR calculator needs as input the sensitivity of all positions involving market risks. This sensitivity is expressed
for instance as the value of a basis point for interest rate products or as the number of shares for the equity business. This
manual explains what information is required by VaR (examples of what has to be sent to VaR is given for each product).
The methodology used in VaR involves the daily production of two files containing all market exposures. The first
one, which we call the “Equity positions Table” or “EQT” file will contain the list of all exposures to specific stocks. The
second one, the “Position Values Table” or “PVT” file, will contain all remaining exposures (interest rate, foreign exchange,
equity index, commodity and volatility). The format of these files is described in the chapters VIII and IX of this document.
Starting with Release 5.0, the standard non-linear risk matrices (the so-called P/L matrices) used by the Bank for
reporting options risks must be delivered to the VaR system with a sufficient level of granularity.
The simulation based framework introduced with Release 5.0 covers both the first order delta and vega risks, also referred as
linear risk, as well as the second order non-linear risks due to optionality in the portfolio.
I.1 THE EQUITY POSITIONS FILE (EQT)
This file contains records of all risks resulting from exposures to specific stocks at a level of aggregation determined by the
organization structure. A record in this file corresponds to the end-of-day inventory (number of shares) of a given equity as
indicated by its ISIN code and its ReptID (“Report ID”), which can be a trading portfolio or a desk. ReptIDs map to Business
Units in the Risk Delegation Hierarchy and to the Minor Business Lines. These risks are derived from positions taken in:
 stocks
 futures on a stock
 options/warrants on a stock
 convertible bonds
Example of an EQT record:
TradeDate RepID ISINcode FeedID # of shares MktPrice CaptPt Currency
12/24/1996 170017 CH0001361010 GEOP0002 1000 267 ZH CHF
(the full description of these field can be found in chapter IX).
In the case of an option/warrant on a stock, a future on a stock, or a convertible bond, only the delta expressed as an
equivalent number of stocks should be included into the EQT file. The interest rate and volatility sensitivity resulting from
these positions must be included in the PVT file.
I.2 THE POSITION VALUES FILE (PVT)
The PVT file holds all interest rate, foreign exchange, equity index, commodity and volatility sensitivity at a level of
aggregation determined by the organization structure and the granularity of the GTRM reporting ladders. In short, this file
contains all risks coming from all exposures except those reported in the EQT file. The current PVT holds only linear
sensitivity.
The positions that have to be included in the PVT file are due to exposure in:
 interest rate (bonds, convertible bonds, futures on interest rate, swaps, options on interest rate,...)
 foreign exchange
 stock index
 commodity
 implied volatility
The following figure shows the structure of the PVT file:
TradeDate RepID PRC FeedID PositionValue CapturePoint Currency
12/24/1996 10023 2231 NYFXdesy -1000000 NY GBP
(the full description of these fields can be found in chapter VIII).

I.3 POSITION RISK CODE AND POSITION VALUE
The PositionRiskCode and the PositionValue fields need to be explained in details. The risk associated to a position has to be
identified by a PositionRiskCode (PRC). Example of PRCs are:
“2226” (USD/DEM SPOT), “2294” (GOLD SPOT), “192” (DEM GOVT 7Y), “6409” (USD/FRF FX OPT 3M VOL)
This code ties the exposure to the Market Structure through 3 levels of classification:
Risk Class Broad Risk Type Commodity
Here some examples of how a PRC is hooked up in the Market Hierarchy:
PRCs are associated with time series, which determine the volatility and the correlation with other exposures. For instance,
PRC “2275” (DEM DAX CASH EQUITY) is associated with the time series “DEMEQT” (WEST GERMAN DAX INDEX -
CLOSE) which is in turn associated with the currency “DEM”.
Once the risks are identified for each product, a sensitivity to these risks has to be reported. This is represented by the
“PositionValue” field. The content of this field varies according to the type of risk:
Type of risk Content of PositionValue field
FX spot amount of currency
Equity index spot size of the exposure expressed in market value term
Commodity spot quantity held in position (in ounces for precious metals, USD for crude oil,...)
Interest rate change in the value of the portfolio for 1 bp increase in the corresponding interest rate (zero, par rate)
Volatility change in the value of the portfolio for 1% absolute increase in volatility
... ...
Look at the specific products sections for a full description of what has to be sent.

I.4 SPLITTING
Overview
In the case the sensitivity captured does not match the maturity ladder specified by GTRM, a splitting of the position should
take place.
The interest rate sensitivity is reported along the following maturity grid:
1M 2M 3M 6M 9M 12M 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 20Y 30Y
For Repo only, the following maturity grid has been retained:
ON 2D 1W 2W 1M 2M 3M 6M 9M 12M
Splitting the cash flows
The splitting of the cash flows should preserve both the PV and the sensitivity. The method how to perform the cash flow
splitting is described in details in 1 and 2.
Assume that there are two grid points at time ti and ti+1. A cash flow ct occurring at time t, lying between ti and ti+1, with a
discount factor DFt can be bucketed at ti and ti+1 in the following way:
c
t t
t t
D F
D F
ct
i
i i i
t
i



 


( )
( )
1
1
c
t t
t t
D F
D F
ct
i
i i i
ti 



 
 
1
1 1
( )
( )
Cash flows occurring before the first grid point are bucketed into the first maturity; equally, cash flows falling after the last
grid point are bucketed into the last maturity date.
In cases where the recommended solution is too difficult to implement, a simple work around solution consists in mapping
the sensitivity to the nearest available maturity bucket (e.g. maturities from 10.5 month to 1.5 year are mapped to the 1 year
grid point).
Splitting the Vega and the PVBP
The splitting of the vega and the PVBP is done using the pro-rata temporis rule:
Ex:
A vega falling at time t between the maturity grid points ti and ti+1 should be split in the following way:
veg a
t t
t t
veg at
i
i i
ti





( )
( )
1
1
veg a
t t
t t
veg at
i
i i
ti 





1
1
( )
( )
The following chapters gives examples of how risks for selected products must be entered in the PVT/EQT files.

I.5 THE P&L MATRIX (LOOKUP TABLE)
Portfolios which carry non-linear risk and which currently report the linear sensitivities to the VaR system are required to
report in addition a P&L lookup table to the simulation based calculator. The linear part of their risk will still be captured
through the PVT/EQT interface and the P&L lookup table will only serve to calculate the non-linear add-on. Therefore, term-
structure risk of yield curves and volatilities are captured through the linear VaR, same as the specific risk of equities.
In order to avoid double counting of linear positions, there is additional information needed, either
a) an additional linear matrix which corresponds to the positions fed through the PVT/EQT interface,
or
b) a description (linear equation) in the matrix feed which allows the construction of the linear matrix in the VaR System.
Below, a sample of a P&L matrix file:
[Header]
TradeDate=05/01/1996
FeedID=NYGXDNL
CapturePoint=NY
[PLMat]
ReptID=10001
PRC=8001
NumberofAxes=2
Axis1Desc=AUD/DEM Spot
Axis2Desc=AUD/DEM Vol
Axis1Size=9
Axis2Size=5
Axis1Eqn=(1 + P2222)/(1 + P2226) - 1
Axis2Eqn=P6000
Theta=15000
ThetaPRC=8005
Currency=USD
Fvalue=(1.076, 9.4, 3175011.0)
Fvalue=(1.076, 11.1625, 4341187.0)
Fvalue=(1.076, 11.75, 4731247.0)
Lvalue=(1.076, 9.4, 175011.0)
Lvalue=(1.076, 11.1625, 341187.0)
Lvalue=(1.076, 11.75, 731247.0)
[PLMat]
ReptID=10002
PRC=8001
NumberofAxes=2
Axis1Desc=AUD/CHF Spot
Axis2Desc=AUD/CHF Vol
Axis1Size=9
Axis2Size=5
Axis1Eqn=(1 + P2222)/(1 + P2225) - 1
Axis2Eqn=P6000
A comprehensive discussion of how to deliver non-linear information to the VaR System (full P&L matrices, linear P&L
matrices, Theta) is provided in reference 5.

II. FOREIGN EXCHANGE
INTRODUCTION
The methodology used to compute VaR consists in looking at volatility and correlations of time series. For FX spot positions,
the time series taken into account are the one of “currency against USD” spot.
As a result, the risk in holding a DEM position is identified with the PRC “2226 “ (USD/DEM SPOT). The risk in holding a
USD amount is identified with the PRC “3029 “ (USD/USD SPOT).
Synthetic FX position
Having the FX position of the base currency, in the PVT file, is required even if it carries no risk because the core of the
calculator measures all currency exposures against USD. Therefore, all FX positions, even those not “at risk” (i.e. base
currency), should be sent to the VaR system. If the sum of all FX positions for a specific RepID, converted into the base
currency does not equal zero (using end-of-day FX spot rates), a synthetic position in the base currency is generated by the
system to set this sum to zero. Hence, the creation of the synthetic position handles the case where the position in the base
currency is not sent to the VaR system.
II.1 CURRENCY SPOT
Overview
When holding a spot currency position, the amount of currency held must be included in the PVT. If the FX position is
expressed in term of cross currency exposure, it has to be decomposed into 2 positions corresponding to the positions in
the two respective currencies.
What has to be included in the PVT
Consider a currency spot position. The amount of currency held should be input in the “PositionValue” (Pval) field. For
each exposure, an appropriate PRC, corresponding to the PositionRiskName “USD/currency SPOT” must be assigned.
The record in the PVT file should look like:
TradeDate RepID PositionRiskCode FeedID PositionValue CapturePoint Currency
12/24/1996 xxxxxx PRC xxxxxx PVal xx Curr1
A few PRCs are shown in the table below:
 Exposure to the FX spot rate:
PRC Position Risk Name
2225 USD/CHF SPOT
2226 USD/DEM SPOT
2230 USD/FRF SPOT
2231 USD/GBP SPOT
3029 USD/USD SPOT
... ...

Examples
Ex1: Short FX spot position of 1 million GBP with SpotGBP/CHF = 2.3025
1 record in the PVT file has to be created:
PositionRiskName PRC PositionValue
USD/GBP SPOT 2231 Quantity of GBP = -1000000
Note that in this case, the financing of this position is assumed to be done in the base currency. If this position is not
transmitted and if, for instance, the base currency is CHF, a position equal to: 1000000/2.3025 = 434310 CHF will
be created automatically.
12/24/1996 xxxxxx 2231 xxxxxx -1000000 xx GBP
Ex 2: Long 1 million FRF/DEM (long FRF, short DEM) with SpotDEM/FRF = 3.3925
In this case, the FX position is expressed in terms of FX-cross exposure. It needs to be decomposed into two
amounts of currency corresponding to the exposure in both currency. Therefore, 2 records must be generated in the
PVT file:
USD/FRF SPOT 2230 Quantity of FRF = 1’000’000 FRF
USD/DEM SPOT 2226 (-1)Quantity of FRF / SpotDEM/FRF
= -294’768 DEM
The records in the PVT file should look like:
12/24/1996 xxxxxx 2230 xxxxxx 1000000 xx FRF
12/24/1996 xxxxxx 2226 xxxxxx -294768 xx DEM
Ex 3: Long 1 million USD/DEM (long USD, short DEM) with SpotUSD/DEM = 1.5560
In this case, the FX position is expressed in terms of FX-cross exposure. It needs to be decomposed into two
amounts of currency corresponding to the exposure in both currency. Therefore, 2 records must be generated in the
PVT file:
USD/USD SPOT 3029 Quantity of USD = 1’000’000 USD
USD/DEM SPOT 2226 (-1)Quantity of USDSpotUSD/DEM
= -1’556’000 DEM
12/24/1996 xxxxxx 3029 xxxxxx 1000000 xx USD

II.2 CURRENCY FORWARD/FUTURE
Overview
The FX forward/future risk has to be decomposed into a sensitivity to USD/Currency spot rates and a sensitivity to
interest rates.
Consider a currency forward position on the cross-currency curr1/curr2, with maturity t. This forward position must be
decomposed into the following 4 exposures, each of these identified with an appropriate PRC:
 Exposures to USD/Currency rate:
USD/Currency1: PVal1 = D F C Ft curr curr
t
,
*1 1
USD/Currency2: PVal2 = D F C Ft curr curr
t
,
*2 2
 Exposures to Libor Interest ratecurrency,t :
Libor Interest ratecurrency1,t : PVal3 = P V B P C Fcu rr
t
( )1
Libor Interest ratecurrency2,t : PVal4 = P V B P C Fcu rr
t
( )2
with: D Ft cu rrx,
: Discount factor using the interest rate of the currency x and the maturity t.
C Fc u rrx
t
: Cash flow in currency x falling at time t.
P V B P ( ) : Change in the portfolio value when the interest rate increases by 1 basis point.
25/06/1995 xxxxxx PRC1 xxxxxx PVal1 xx Curr1
 Exposure to the USD/Currency spot rate:
2225 USD/CHF SPOT
2226 USD/DEM SPOT
2230 USD/FRF SPOT
3029 USD/USD SPOT
... ...
 Exposure to the Libor interest ratecurrency,t :
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...

Example
Ex 1: Long 1 million DEM/FRF 6 month forward
with: 6mth DEM Libor = 3.59%
6mth FRF Libor = 3.25%
FRF/DEM 6mth forward = 3.3975
D F m th D E M6 ,
= 1/(1+0.0359/2) = 0.982
D F m th F R F6 ,
= 1/(1+0.0325/2) = 0.984
Generate 4 records in the PVT file with:
USD/DEM SPOT 2226 D F C Fm th D E M D E M
m th
6
6
,
*
= 0.9821’000’000 = 982’000
USD/FRF SPOT 2230 D F C Fm th F R F F R F
m th
6
6
,
*
= 0.984-3’397’500 = -3’343’140
DEM LIBOR 3M 303 P V B P C FD E M
m th
( )
6
=-48
FRF LIBOR 3M 1119 P V B P C FF R F
m th
( )
6
=163
25/06/1995 xxxxxx 2226 xxxxxx 982000 xx DEM
25/06/1995 xxxxxx 2230 xxxxxx -3343140 xx FRF
25/06/1995 xxxxxx 1119 xxxxxx 163 xx FRF

II.3 CURRENCY OPTION
Overview
Currency option risk has to be decomposed into the following components: the delta of the option expressed as two
equivalent spot positions in the respective currencies, the sensitivity to +1 bp move of the corresponding interest rates
and the sensitivity to a 1% absolute increase in volatility of currency1/currency2 spot rates.
Consider a currency option on the cross-currency curr1/curr2, with maturity t. This option must be decomposed into the
following exposures:
 Exposure to USD/Currency spot rate:
USD/Currency1: PVal1 = Equivalent spot exposure corresponding to currency1
USD/Currency2: PVal2 = Equivalent spot exposure corresponding to currency2
 Exposure to Volatilitycurrency1/currency2, t:
Volatilitycurrency1/currency2, t PVal3 = Sensitivity to a 1% absolute increase in volatility, with a time horizon t,
of currency1/currency2
 Exposure to Libor Interest ratecurrency:
Libor Interest ratet,currency1: PVal4 = Sensitivity to 1 bp increase in the corresponding interest rate.
Libor Interest ratet,currency2: PVal5 = Sensitivity to 1 bp increase in the corresponding interest rate.
2225 USD/CHF SPOT
2226 USD/DEM SPOT
2230 USD/FRF SPOT
3029 USD/USD SPOT
... ...
 Exposure to the Libor interest ratet, currency:
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...
 Exposure to the FX volatilityt, currency:
8318 DEM/ITL FX OPT 1M VOL
8319 DEM/ITL FX OPT 2M VOL
... ...
The available maturity buckets are: 1 month, 2m, 3m, 6m, 9m, 12m, 2y, 5y, 10y

Example
Ex: 1 option to buy 1’000’000 DEM with ITL / maturity = 3 mth / strike = 1100
with:
FX spot USD/ITL = 1600 FX spot USD/DEM = 1.5 Vol. DEM/ITL =14.4%
delta12= 0.568 vega12 = 2’140’000 ITL for a 1% abs increase in volatility DEM/ITL
delta transformation:
Spot exposure in DEM = 1’000’0000.568 = 568’000 DEM
Spot exposure in ITL = -1’000’0000.5681600/1.5 = -606’000’000 ITL
vega = sensitivity to a 1% abs increase in volatility = 2’140’000 ITL
USD/DEM SPOT 2226 Spot exposure in DEM
USD/ITL SPOT 2234 Spot exposure in ITL
DEM LIBOR 3M 302 Sensitivity to 1 bp increase in the DEM Libor 3months
ITL LIBOR 3M 438 Sensitivity to 1 bp increase in the ITL Libor 3months
DEM/ITL FX OPT 3M VOL 8320 Sensitivity to a 1% absolute increase in volatility of DEM/ITL 3months
25/06/1995 xxxxxx 2226 xxxxxx 568’000 xx DEM
25/06/1995 xxxxxx 2234 xxxxxx -606’000’000 xx ITL
25/06/1995 xxxxxx 302 xxxxxx -1’477 xx DEM
25/06/1995 xxxxxx 438 xxxxxx 1’446’000 xx ITL
25/06/1995 xxxxxx 8320 xxxxxx 2’140’000 xx ITL

III. INTEREST RATE
INTRODUCTION
The products sensitive to interest rates should be incorporated in the PVT in the following way:
 The interest rate sensitivity is the change in the present value of the portfolio following a one basis point upward shift in
the interest rate. Since the methodology adopted consists in looking at the volatility of “benchmark” interest rates (e.g.
swap rate, government rate, Libor rate, ...) the sensitivity must be reported accordingly (+1 bp shift of the par yield for
maturity  1year, +1 bp shift of the zero rate for maturity  1year) of the appropriate daycount and compounding
convention.
 The interest rate sensitivities are reported according to the following maturity grid points.
1M 2M 3M 6M 9M 12M 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 20Y 30Y
For Repo only, the following maturity grid has been retained:
ON 2D 1W 2W 1M 2M 3M 6M 9M 12M
In the case where the interest rate sensitivity falls between 2 maturity grid points, it has to be split. The method how to
split the sensitivity is given in the chap. “I.4 Splitting”.
 The interest rate sensitivity is reported according to the currency and the Commodity Name of the product (e.g. govt,
corporate, ...). Corresponding Position Risk Codes have been defined to cover the different currencies and Commodity
Names.
Below, some Commodity Names that are defined in the Market Hierarchy:
GOVT: government interest rate
LIBOR: Libor interest rate
CORPORATE: corporate interest rate (defined by sector and rating for USD exposures)
AGENCY: agency interest rate
GOVT Future: government interest rate exposure resulting from a position in interest rate futures
GOVT Options: government interest rate exposure resulting from a position in interest rate options
...
Note that Commodity Names representing interest rate spreads have been defined for some markets (e.g. government-swap
spread) in order to better capture the risk taken in spread positions. Explanations on how to capture spread positions in VaR
can be found under the instruments concerned.

III.1 GOVERNMENT BOND
Overview
A government bond portfolio is represented through its par yield sensitivity (1 bp increase in the corresponding interest
rate) and must be included in the PVT file. Alternatively, non-USD positions can be expressed in term of a sensitivity to
the swap rate and a sensitivity to the swap-government spread (not yet available for CHF and JPY).
Consider a government bond in currency1 with maturity t. This bond is represented through its par yield sensitivity
according to the pre-defined maturity buckets (see chap. III Interest rate Introduction). Two different methods exist to
report the sensitivity of the bond:
1) Report the par yield sensitivity of the government bond, along with the PRC corresponding to the government bond.
PRCs that are used to capture government interest rate exposures are defined for different currencies and the
maturity grid.
The record in the PVT file should looks like:
with: PRC1 = PRC corresponding to an exposure in government interest rate
PVal1 = par yield sensitivity to a +1 bp move in the interest rate corresponding to PRC1.
2) For non-USD sensitivity only: report the par yield sensitivity of the government bond with the PRC of a Libor rate
together with the sensitivity to the yield spread swap-government with its PRC.
with : PRC1 = PRC of the swap interest rate
PRC2 = PRC of the swap-government spread.
PVal2 = sensitivity to a 1 bp decrease in the swap-government spread corresponding to PRC2.
 Exposure to the government interest ratet, currency:
453 CHF GOVT 1M
454 CHF GOVT 2M
189 DEM GOVT 4Y
 Exposure to the government-swap spreadt, currency:
7214 DEM GOVT SPREAD TO SWAP 1M
7222 DEM GOVT SPREAD TO SWAP 4Y
 Exposure to the swap interest ratet, currency:
300 DEM LIBOR 1M
308 DEM LIBOR 4Y

Example
Long 10 millions notional government bond 6% DEM with 4 years to maturity.
The sensitivity of this bond is expressed as the par yield sensitivity, in this case -300 DEM when the interest rate
increases by 1 bp, associated with the PRC representing the DEM 4Y government bond.
12/25/1996 xxxxxx 189 xxx -300 xx DEM
Alternatively, this exposure can be expressed as the par yield sensitivity of the bond, in this case -300 DEM,
associated with the PRC representing the DEM 4Y Libor, together with the opposite sign sensitivity (+300 DEM),
associated with the PRC representing the DEM 4Y Govt spread to swap.
The change of sign of the sensitivity is due to the fact that the spread is defined as ‘swap minus government’
(a 1 bp increase in the government interest rate implies a reduction of the swap-government spread).
12/25/1996 xxxxxx 308 xxx -300 xx DEM
12/25/1996 xxxxxx 7222 xxx 300 xx DEM

III.2 CORPORATE BOND
Overview
A corporate bonds portfolio is reported through its par yield sensitivity (+1 bp increase in the corresponding interest rate)
and must be included in the PVT file. Alternatively, the sensitivity can be expressed in terms of a sensitivity to the
government rate and a sensitivity to the corporate-government spread.
Consider a corporate bond in currency1 with maturity t. This bond is reported through its par yield sensitivity along the
pre-defined maturity buckets . There are two methods to report the sensitivity of a corporate bond:
1) Report the par yield sensitivity of the corporate bond, along with the PRC of the corporate bond. PRCs used to
capture the corporate interest rate exposures are defined for different currencies and the maturity grid. Note that
the PRCs for “USD corporate interest rate” are defined for different sectors and agency ratings.
with: PRC1 = PRC corresponding to an exposure in corporate interest rate
2) For USD sensitivity only: report the par yield sensitivity of the government bond, along with the PRC of a
government bond, together with the sensitivity to the corporate-government spread, along with its PRC.
For non-USD sensitivity: report the par yield sensitivity of the government bond, along with the PRC of a Libor
rate, together with the sensitivity to the corporate-swap spread, along with its PRC.
with : PRC1 = PRC of the government interest rate for USD spreads (swap interest rate for non-USD spreads)
PRC2 = PRC of the corporate-government spread for USD (corporate-swap spread for non-USD).
PVal2 = sensitivity to a 1 bp increase in the corporate-swap spread corresponding to PRC2.
 Exposure to the corporate interest ratet, currency:
249 DEM CORPORATES 1M
5895 USD AAA CORPORATE BANK/FINANCE 1M
 Exposure to the corporate-swap spreadt, currency:
7129 BEF A INDUSTRIAL SPREAD TO SWAP 1M
7130 BEF A INDUSTRIAL SPREAD TO SWAP 2M
572 CHF LIBOR 1M
573 CHF LIBOR 2M

III.3 BOND FUTURES
A bond futures position is treated like a position in the underlying bond (usually a government security) through its par yield
sensitivity. However, the position is not generated by a particular physical bond, but rather by one of the eligible bonds, the
Cheapest-to-Deliver, whose price must be corrected (divided by a conversion factor provided by the exchange) to take the
definition of the notional underlying into account.

III.4 SWAP
Overview
The swap is reported through its net par rate sensitivity (1 bp increase in the corresponding interest rate) and must be
included in the PVT file. Equally, currency swaps (CRS) report interest rate sensitivity and no FX exposure (since the
principals are exchanged at the start and at the end of the transaction at the same exchange rate).
Consider a swap:
this swap is reported through its par yield sensitivity along the pre-defined maturity buckets.
Par rate sensitivity is defined as follows:
Every rate on the yield curve is shifted separately by +1 bp in order to calculate a new set of discount factors. The
difference in present value (PV) of the portfolio due to this shift is an element of the sensitivity vector, i.e. the sensitivity
of the portfolio to a particular par rate (see also in references 1 and 2).
PRC corresponding to Libor interest rate are defined according to the currency and the maturity grid.
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...

III.5 EMERGING MARKET BOND
Overview
For most of the emerging market bonds, the risk parameter chosen is not the volatility of the corresponding interest rate
but rather the volatility of either the specific bond or of the J.P.Morgan indices (EMBI+ , LEI, …). This mehtod has been
choosen in accordance with market practices. Therefore, VaR needs as input the market value of these positions and not
the yield sensitivity. However, as these markets become more mature, yield sensitivity will gradually become the
standard. VaR methodology will then follow the conventions.
Consider an emerging market bond. The market value of the position and the PRC of this specific bond must be included
in the PVT file. If the bond has not been defined in the VaR system, the PRC of the corresponding market index should
be used.
 Exposure to specific Emerging Markets bonds:
6675 ARGENT-BEAR-FRB 0 03/31/05
6676 ARGENTINA - PAR 0 03/31/23 L-GP
6737 YABS BOSNIA 1/4 0 07/15/06 06H
... ...
 Exposure to Emerging Market bond indices:
6755 ARGENTINA EUROBONDS
6756 ARGENTINA LOCAL MARKET
6757 BRAZIL EUROBONDS
6758 BRAZIL LOCAL MARKET
6759 BULGARIA EUROBONDS
6760 BULGARIA LOCAL MARKET
6761 ECUADOR EUROBONDS
6762 ECUADOR LOCAL MARKET
6763 MEXICO EUROBONDS
6764 MEXICO LOCAL MARKET
6765 MOROCCO EUROBONDS
6766 MOROCCO LOCAL MARKET
6767 NIGERIA EUROBONDS
6768 NIGERIA LOCAL MARKET
6769 PANAMA EUROBONDS
6770 PANAMA LOCAL MARKET
6771 PERU EUROBONDS
6772 PERU LOCAL MARKET
6773 PHILIPPINES EUROBONDS
6774 PHILIPPINES LOCAL MARKET
6775 POLAND EUROBONDS
6776 POLAND LOCAL MARKET
6777 RUSSIA EUROBONDS
6778 RUSSIA LOCAL MARKET
... ...

III.6 OPTION
III.6.1 CAP/FLOOR
Overview
A cap or a floor are reported through their interest rate sensitivity (1 bp increase in the corresponding interest rate), and
the sensitivity to a 1% absolute increase in the volatility of the cap/floor (yield volatility).
Where: Pval1 is the sensitivity of the position to a 1 bp increase in the corresponding interest rate expressed in currency1
Pval2 is the sensitivity to a 1% absolute increase in the volatility (vega).
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...
 Exposure to the cap volatility:
5684 USD 3M LIBOR IMPLIED VOL CAP 1Y
5685 USD 3M LIBOR IMPLIED VOL CAP 2Y
... ...

III.6.2 SWAPTION
Overview
A swaption is reported through its interest rate sensitivity (1 bp increase in the corresponding interest rate) and the
sensitivity to a 1% absolute increase in the volatility of the swaption (yield volatility).
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...
 Exposure to the swaption volatility:
5684 USD SWAPTION 3M OPT 2Y SWAP VOL
5685 USD SWAPTION 6M OPT 2Y SWAP VOL
... ...

III.6.3 OPTION ON GOVERNMENT BOND
Overview
An option on a government bond is reported trhough its par yield sensitivity (1 bp increase in the corresponding interest
rate), and the sensitivity to a 1% absolute increase in the volatility (price volatility).
 Exposure to the government interest ratet, currency1:
453 CHF GOVT 1M
454 CHF GOVT 2M
... ...
181 DEM GOVT 1M
182 DEM GOVT 2M
... ...
 Exposure to the government bond volatility:
6020 AUD GOVT BOND OPT 2Y VOL
6021 AUD GOVT BOND OPT 5Y VOL
... ...

III.7 MORTGAGE BACKED SECURITIES
Overview
The Mortgage Backed securities businesses in North America are broken into 5 major units. These are Adjustable Rate
Mortgages, Arbitrage Trading, Collateralized Mortgage Obligations and Mortgage Derivatives, Pass Throughs, and
Project Loans and Commercial Real Estate. Each of these businesses contain non-linear risk. As such, A PVT file
containing linear sensitivities as well as a MAT file containing non-linear matrices of PL effects for these businesses
must be constructed and delivered on a daily basis.
What needs to be included in the PVT
A mortgage-backed security contains interest rate, prepayment, and vega risk. Therefore, the PVT file for all of the
businesses should reflect these sensitivities. Therefore, the following sensitivities will be computed and delivered on a
daily basis:
Description Position Risk Name Position Risk Code
2 Year Treasury sensitivity USD GOVT 2Y 7
10 Year bond options implied volatility USD GOVT BOND OPT 10Y VOL 3018
2 Year Mortgage Backed Spread sensitivity USD MBS SPREAD RISK 2Y 4115
Here N Year Treasury sensitivity is defined as the net PL effect of bumping the N-maturity on the run treasury yield up
one basis point . The entire book is repriced to give this PL. The 10 Year bond option implied volatility sensitivity is the
defined as the net PL effect of bumping the implied volatility of 10 year bond futures options contracts by 1 percent. The
N Year MBS Mortgage Backed Spread sensitivity is defined as the net PL effect of bumping the N-maturity OAS spread.
Only purely mortgage securities and their derivatives are repriced in this scenario. This sensitivity is a measure of the
market’s view of prepayment risk.
25/06/1995 xxxxxx PRC1 xxxxxx Pval1 xx Curr1
In the case of Mortgages, the Report Ids and the corresponding businesses are as follows:
10044 Collateralized Mortgage Obligations and Mortgage Derivatives
10047 Mtg to be Announced; Passthroughs
21027 Project Loans and Commercial Real Estate
21028 Arbitrage Trading
10049 Adjust Rate Mortgages
In all cases the reporting currency is USD. The FeedId is NYMBlin, and the Capture Point is NY.

What needs to be included in the MAT
As stated before, all of the mortgage businesses contain non-linear risk. Therefore, the MAT file should contain full
(non-linear) matrices for each of the businesses. In addition, the file should contain an equation which will specify how to
construct the linear matrix from linear sensitivities. In the case of each business, the equation should be the following:
LinEqn1=(P7+P10+P15)*100
This allows for the clean and consistent construction of a linear matrix from the linear 2Y, 5Y, and 10Y treasury
sensitivities.
The matrices will be one dimensional and have 7 grid points corresponding to +-25,+-50, and +-100 basis point parallel
shocks to the US Treasury yield curve. In particular, matrix population is achieved through sequentially performing the
above shocks to the yield curve and then computing the PL effects of these shocks through full-blown revaluation of the entire
book.
The PL lookup during the Monte Carlo simulation will be performed by using the following axis equation in each case:
Axis1Eqn=+(L1+L2+L3+L4+L5+L6+L7+L8+L9+L10+L11+L12+L14+L13+L15+L16+L17)/1700
This specifies that the simulation engine take the average of absolute US Treasury yield changes over all points on the
yield curve for any given random scenario. The FeedId for the Mortgage MAT file is NYFINL3. The Capture point is NY,
the nonlinear interest rate risk PRC is 8002, and the interest rate ThetaPRC is 8006. Therefore, the MAT file should look like
the following:
[Header]
TradeDate=11/07/1997
FeedId=NYFINL3
CapturePoint=NY
[PLMat]
ReptID=21028
PRC=8002
NumberofAxes=1
Axis1Desc=Treasury Curve for Arb Trading
Axis1Size=7
Axis1Eqn=+(L1+L2+L3+L4+L5+L6+L7+L8+L9+L10+L11+L12+L14+L13+L15+L16+L17)/1700
LinEqn1=(P7+P10+P15)*100
Theta=0.000000
ThetaPRC=8006
Currency=USD
Fvalue=(1,-1264740)
Fvalue=(0.5,121454)
Fvalue=(0.25,263541)
Fvalue=(0,0)
Fvalue=(-0.25,-781186)
Fvalue=(-0.5,-2205830)
Fvalue=(-1,-6021380)

IV. EQUITY
Exposures related to an equity index and exposures due to risks associated with specific stocks are treated in different ways.
 The exposure to the equity index must be captured in the PVT file with a PRC corresponding to the stock index and a
position correponding to the market value.
 The exposure to a cash stock must be captured in the EQT file. The parameters requested to identify the stock and the
exposure are: the ISIN code of the stock, the number of shares held in the portfolio and the stock price.
Note that the Beta feed which contains Beta and Volatility for each ISIN code defined is under the reponsibility of the
location. If the total volatility corresponding to an ISIN code is not defined, it will be assumed to be equal to 5/3 of the
volatility of the underlying stock index.
IV.1 EQUITY BETAS
The method used to capture equity risk in the VaR System is based on the Capital Asset Pricing Model (CAPM), a single
factor model based on the stock index volatility.
The Capital Asset Pricing Model asserts that the expected excess return on securities is proportional to their systematic
risk coefficient or Beta (); the market portfolio (diversified portfolio) being characterized by a Beta of unity.
Diversification reduces security-specific risk, but does not eliminate all risk because stocks tend to move up and down
with the market.
T o ta l R is k
RiskofPortfolio
N um ber of S tocks in P ortfolio
S ystem atic (M arket R isk)
Residual
Risk
RateofReturn
B eta
1 20
R isk-F ree R ate
M arket P ortfolio
M arket R eturn
2 %
The CAPM implies that the total return on any security is:
Hence, returns for any stock or portfolio will be related to Beta, the exposure to undiversifiable systematic risk. The Beta is
defined as follows:
 


 
C o v r r
V a ria n ce r
sto ck m a rket
m a rket
sto ck m a rket
sto ck
m a rket
( ~ , ~ )
( ~ )
/
where:
~rstock
= return on particular asset (security)
~rm arket
= return on market portfolio
stock/market = correlation between the stock and the market index
which is equivalent to the following definition:
(note: the latter definition only applies in the theoretical case where the numbers are based on an unweighted volatility for
the index and the stock).
The stock variance (2
stock) is therefore the sum of the market variance and the stock specific variance:
     
2 2 2 2 2 2
sto ck in d ex sp ecific risk m a rket risk sp ecific risk    _ _ _
Total Return = Risk Free Return + (Market Return - Risk Free Return) * 
 = slope of the regression line between the return on the stock and the return on the index

IV.1.1 Beta Source
The Beta should be calculated using the ‘exponential weighting method’ and weekly returns (average over 5 business days)
described in reference 3 in order to be consistent with the VaR methodology.
In the case this is not possible, the Predicted Beta computed by the Barra system for multi-factor models is also suitable.
However, inconsistencies may occur in the VaR calculation, since the stock specific risk will be calculated out of the total risk
(delivered together with the Beta) and the market risk (computed by the VaR team), and those estimators won’t be based on
the same premises.
IV.2 CASH PRODUCTS
IV.2.1 CASH EQUITY
Overview
An exposure to a stock is captured through its ISIN code, the number of shares held in the portfolio and the stock price.
This exposure is entered in the EQT file.
The records in the EQT file should look like:
TradeDate RepID ISINcode FeedID  of shares MktPrice CaptPoint Currency (optional)
25/06/1995 xxxxxx xxxxxxxxx xxxxxx xxx xxx xx xxx
Table extract:
ISIN code Name
CH0012345565 UBS Bearer
NL3423544 Heineken
US0003330303 IBM
US003423003 Microsoft
...
Example
Long 1’000 UBS Nom. Shares ISIN Code : CH0001361010
Short 2’000 IBM Shares ISIN Code : US4592001014
TradeDate RepID ISINcode FeedID  of shares MktPrice CaptPoint CCY (optional)
25/06/1995 xxxxxx CH0001361010 xxxxxx 1000 267 xx CHF
25/06/1995 xxxxxx US4595001014 xxxxxx -2000 107 xx USD
Particular cases
For the case where the equity position has no ISIN code defined, a “dummy” ISIN code has to be used. This “dummy”
ISIN code should be used only temporarily until an appropriate ISIN code is defined. The Beta for the stocks represented
by these ISIN is equal to 1 and the total stock volatility equals 5/3 (1.67) of the volatility of the corresponding market
index.
Example
Long 1’000 Alex SA Shares (France) Price 421 FRF ISIN Code : FRAAAAAAAA
TradeDate RepID ISINcode FeedID  of shares MktPrice CaptPoint CCY (opt.)
25/06/1995 xxxxxx FRAAAAAAAA xxxxxx 1000 421 xx FRF

IV.2.2 SWISS CERTIFICATES, ADRs, GDRs
Introduction
The method to capture the Swiss certificates, ADRs and GDRs in VaR depends on the GCET country rating of the
underlying stock. For companies domiciled in a Country rated 1 or 2 according to this rating, the ADR/GDR/Certificate
is considered fungible with the underlying stock and a position in ADRs/GDRs can be fully netted against the stock.
Therefore, there is no need for a separate ISIN code for the ADR. However, since the ADR/GDR/Certificate is traded in
another currency than the underlying stock, a currency risk has to be reported.
In the other case, when the homecountry of the underlying stock is rated less than 2 (3-10), the ADR/GDR/Certificate has
to be treated as an asset on its own. In this case, the ADR is mapped on the market index of the respective exchange (e.g.
S&P500 for ADRs traded at the NY stock exchange) and the full specific risk with respect to this index is included in
VaR. This method ensures that where capital transfert or share ownership restrictions prevent arbitrage between ADR
and stock, the spread risk is properly captured.
See in chapter “IV.1CASH EQUITY” on how to build a record in the EQT file and “II 1. CURRENCY SPOT” on how
to report currency exposure.
GCET Country Rating >2
This method considers the ADR and the underlying stock as two separate assets, with their own specific risk and market
risk. Therefore, the VaR of a portfolio long ADR and short stock and with a currency hedge will not be equal to zero.
 EQT file:
Report the ADR position with its own ISIN code, which is mapped to the stock index of the country
corresponding to the currency of the ADR.
Ex: Long 1 Swiss certificate Philip Morris quoted in CHF, funding in CHF
with: Philip Morris Swiss certificate ISIN CH0009622215 Price = 151.8 CHF USD/CHF = 1.3678
US Stock ISIN US7181541076 Price = 111 USD
Send 1 file to VaR:
(EQT file)
Qty ISIN MktPrice Currency
1 CH0009622215 151.8 CHF

GCET Country Rating 1 or 2
This method should be used only when the ADR and the stock react as a same stock, simply linked with the FX exchange
rate. As the same ISIN code is used to capture both the stock and its ADR, the specific risk (and the market risk) will
offset when one is long one and short the other.
 EQT file:
- map the ADR position to the ISIN code representing the stock (beware to adjust for quantity if the ADR and the
stock are not 1 to 1).
 PVT file:
- report the currency exposure.
Ex: Long 1 Swiss certificate Philip Morris quoted in CHF, funding in CHF
with: Philip Morris Swiss certificate ISIN CH0009622215 Price = 151.8 CHF USD/CHF = 1.3678
US Stock ISIN US7181541076 Price = 111 USD
Send 2 files to VaR:
EQT file
Qty ISIN MktPrice Currency
1 US7181541076 111.0 USD
PVT file
PVal PRC Currency (optional)
111.0 USD/USD Spot rate USD
-151.8 USD/CHF Spot rate CHF
As of November 1, 1997, the following countries had been assigned rating 1 or 2:
 EU/EFTA, Finland
 USA, Canada
 Japan, Singapore, Taiwan, Australia, Hong Kong, New Zealand
For an up-to-date list of Country Ratings please call the VaR Business Suport.

IV.2.3 EQUITY INDEX SPOT
Overview
An exposure to a stock index must be captured in the PVT file in terms of market value, expressed in the currency of the
index.
Alternatively, it can be captured in the EQT file. In this case, an “artificial” ISIN code must be created, associated with
the Total Risk and the Beta. If the Total Risk defined for this ISIN equals the volatility of the stock index and the Beta is
set to 1.0, both method will lead to the same VaR exposure (no stock specific risk).
The parameters to send are the market value of the exposure to the stock index, along with the PRC corresponding to this
index.
TradeDate RepID PositionRiskCode FeedID PositionValue CapturePoint Currency (optional)
with: PVal1 = Market value of the position expressed in Curr1
Curr1 = Currency of the stock index
PRC1 = PRC representing the stock index
 Exposure to the equity index:
3678 CHF SMI CASH EQUITY
2275 DEM DAX CASH EQUITY
2273 GBP FTSE 100 CASH EQUITY
2269 USDSP500 CASH EQUITY
... ...

IV.3 FORWARD/FUTURE
IV.3.1 STOCK FORWARD/FUTURE
Overview
An exposure to a stock forward/future must be captured:
in the EQT file: the cash stock exposure (in terms of equivalent number of shares)
in the PVT file: for the interest rate exposure.
What has to be included in the EQT/PVT
The exposure to the cash stock is captured through its ISIN code (ISIN1), the equivalent quantity of stock held in the
portfolio (Qty1) and the share price (Price1) . This exposure must be reported in the EQT file.
The interest rate exposure (1 bp increase in the interest rate) must be reported in the PVT file.
05/06/1995 xxxxxx ISIN1 xxxxxx Qty1 Price1 xx xxx
... ...

IV.3.2 STOCK INDEX FORWARD/FUTURE
Overview
An exposure to a stock index forward/future must be decomposed into a spot equity index exposure and a sensitivity to
the interest rate. This sensitivity must be captured in the PVT file.
The parameters to send are the market value of the exposure to the cash stock index, along with the PRC corresponding
to this index and the sensitivity of the position to an increase of 1 bp in the corresponding interest rate.
with: PVal1 = Exposure to the underlying stock index expressed in Curr1
Curr1 = Currency of the exposure
PRC1 = PRC representing the stock index
PVal2 = Sensitivity of the position to an increase of 1 bp in the corresponding interest rate.
Curr2 = Currency of the exposure
PRC2 = PRC representing the interest rate exposure
... ...
572 CHF LIBOR 1M
573 CHF LIBOR 2M
... ...
300 DEM LIBOR 1M
301 DEM LIBOR 2M
... ...

IV.4 OPTION
Options are captured in VaR through two parameters:
 a sensitivity to the underlying stock or stock index
 a sensitivity to an absolute increase in the implied volatility, with a term of 1%
When the underlying is a stock, the sensitivity must be expressed in an equivalent number of shares and included in the EQT
file.
When the underlying is a stock index, the sensitivity must be expressed in term of market value and included in the PVT file.
PRCs corresponding to volatility exposure are defined only for stock indices.
IV.4.1 STOCK OPTION
Overview
A option on a stock has to reported through its delta, the sensitivity to the underlying stock, and its vega, the sensitivity to
a 1% absolute increase in the market index volatility with a time horizon t.
What has to be included in the EQT/PVT
Consider an option on a stock:
25/06/1995 xxxxxx ISIN1 xxxxxx Qty1 Price1 xx xxx
Where: ISIN1, Qty1 and Price1 reflects the delta of the option
PVal1 is the sensitivity of the position to a 1% absolute increase in the volatility (vega), and PRC1 reflects the
volatility of the stock index with a time horizon t.
Extract of some ISIN codes:
ISIN code Name
CH0012345565 UBS Bearer
NL3423544 Heineken
US0003330303 IBM
US003423003 Microsoft
...
 Exposure to the equity index volatility, t:
3725 CHF EQUITY VOLATILITY 1M
3888 USD EQUITY VOLATILITY 1M
... ...

IV.4.2 STOCK INDEX OPTION
Overview
An option on a stock index is reported through its delta, the sensitivity to the stock index, and its vega, the sensitivity to a
1% absolute increase in the market index volatility.
Consider an option on a stock index:
Where: PVal1 is the delta of the position, expressed in term of the market value of an equivalent position in the underlying
index
PVal2 is the sensitivity of the position to a 1% absolute increase in the volatility (vega).
... ...
 Exposure to the equity index volatility, t:
... ...

IV.5 CONVERTIBLE
Overview
The risk of a convertible has to be decomposed into: interest rate sensitivity, delta and vega risk. Interest rate sensitivity
and vega risk are entered in the PVT file, equity delta belongs to the EQT file.
The method to capture the market risk of a CB consists in the following parameters:
- Delta of the CB: expressed as an equivalent number of share
- Interest rate sensitivity: according to the currency and maturity buckets
- Vega of the CB: sensitivity to a 1% absolute increase in the implied volatility
Consider a convertible. This convertible must be decomposed into the following exposure:
 Specific equity: NBShare = delta of the convertible expressed in equivalent number of shares
 Libor interest ratecurrency1: PVal1 = par yield sensitivity (1 bp increase in the interest rate)
 Vega risk: PVal2 = sensitivity to a 1% absolute increase in the implied volatility
The records in the EQT file (equity delta) should look like:
TradeDate RepID ISINcode FeedID  of shares MarkPrice CapturePoint
25/06/1995 xxxxxx ISIN1 xxxxxx NBShare Price xx
A few ISINs are shown in the table below:
ISIN code Name
ch0012345565 UBS Bearer
nl3423544 Heineken
us0003330303 IBM
 Exposure to the corporate interest ratet, currency1:
521 CHF CORPORATES 1M
522 CHF CORPORATES 2M
 Exposure to the equity index volatility, t (no PRCs are currently defined for particular stock vega risks):
... ...
N.B. Reporting of vega has become mandatory. It can no longer be replaced by sentiment risk.

V. COMMODITY
The commodity business is handled the following way:
Precious Metal positions: the risk is decomposed into:
- precious metal spot sensitivity
- interest rate sensitivity (Libor, Lease rate).
Base Metal and Energy positions:
The methodology for estimating the market risk of a forward/future position on base metal or energy is based on the volatility
of the forward prices. The forward/future market is used instead of the spot market because it is more representative of the
business.
The risk factors covering the commodity exposures are associated with the volatility of time series expressed in the following
units: USD/ounce, USD/ton, USD/barrel, USD/gallon. This means that when the underlying commodity is expressed in a
currency other than USD, the position has to be decomposed into a commodity risk (related to the dollar price) and a currency
risk induced by the currency of the underlying (see the following examples in section V.2). In addition, interest rate risk
generated by the P&L in foreign currency has to be reported because it is not transferred to the Money Market desk.
Generally speaking, what has to be sent to the VaR system are the partial derivatives of the P/L function with respect to each
of the risks identified by a PRC.
For instance, consider a long WTI Forward contract position (forward quoted in CAD):
Q Quantity of barrels of WTI
QF “Future equivalent quantity” of barrels. It corresponds to Q for
future contracts and to Q*DFUSD,T-t for forward contracts.
t, T current date, contract maturity date
FCAD/WTI, t= 0 the forward price at transaction time in CAD/bbl
FCAD/WTI, t the current forward price in CAD/bbl
FUSD/CAD, t the current forward FX rate in USD/CAD
SUSD/CAD, t the current spot FX rate in USD/CAD
FUSD/WTI, t the current forward price in USD/bbl
DFCAD,T-t the current discount factor for CAD
DFUSD,T-t the current discount factor for USD
The current P&L (in USD) is expressed as:
or:
Hence, the sensitivity figures to be sent to the VaR system are the following partial derivatives:
Commodity price sensitivity:
FX rate sensitivity:
Interest rate sensitivity (due to unrealized P/L in case of a Forward contract):
P&L(USD)= QF(FCAD/WTI,t - FCAD/WTI,t= 0)SUSD/CAD,t
P&L(USD)= QFFUSD/WTI,t - QFFCAD/WTI,t= 0SUSD/CAD,t
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V.1 PRECIOUS METAL
V.1.1 PRECIOUS METAL SPOT
Overview
Five precious metals have been defined: Gold, Silver, Platinum Palladium and Rhodium. Any PM spot exposure have to
be entered in the PVT in terms of quantity (ounces).
Consider a precious metal spot position of X ounces. The amount X (in ounces) of precious metal held should be input in
the “PositionValue” field. A PRC identifying the precious metal must be included as well.
25/06/1995 xxxxxx PRC1 xxxxxx Pval1 xx
The table representing these PRCs is shown in the table below:
 Exposure to the precious metal spot price:
2294 GOLD SPOT
3957 PALLADIUM SPOT
2316 PLATINUM SPOT
3958 RHODIUM SPOT
2305 SILVER SPOT
Example
Ex 1: Long 1000 oz USD Gold spot
The quantity of gold expressed in ounces is reported. Therefore 1 records in the PVT file must be generated:
GOLD SPOT 2294 Quantity of gold = 1’000
25/06/1995 xxxxxx 2294 xxxxxx 1000 xx

V.1.2 PRECIOUS METAL FORWARD / FUTURE
Overview
Precious metal spot sensitivity, Libor sensitivity and a lease rate sensitivity have to be reported. If the forward/future is
not denominated in USD term, the FX spot sensitivity and the FX interest rate sensitivity have to be reported as well.
Consider a precious metal forward position on precious metal, with maturity t. This forward position must be
decomposed into the following exposures:
 Exposure to precious metal spot price: PVal1 = D F C Ft P M leaserate P M
t
,
* [in oz]
 Exposure to precious metal lease rate: PVal2 = P V B P C F P M
t
( )
 Exposure to Libor Interest ratecurrency: PVal3 = P V B P C Fcu rr
t
( )
 Exposure to FX spot rate (in case where the position is not expressed in USD):
PVal4 = D F C Ft Liborcurr curr
t
,
*
25/06/1995 xxxxxx PRC1 xxxxxx PVal1 xx
25/06/1995 xxxxxx PRC2 xxxxxx PVal2 xx USD
25/06/1995 xxxxxx PRC3 xxxxxx PVal3 xx USD
Note: If the sensitivity to the lease rate is expressed in oz. of precious metal (instead of USD), the ISO code of the precious
metal (XAU, XAG, XPT, XPD) has to be entered in the ‘currency’ field.
A PRC identifying the exposure must be included. A few PRCs are shown in the tables below:
2294 GOLD SPOT
3957 PALLADIUM SPOT
2316 PLATINUM SPOT
3958 RHODIUM SPOT
2305 SILVER SPOT
 Exposure to the precious metal lease rate:
2327 GOLD 1M LEASE RT
2328 GOLD 2M LEASE RT
3970 SILVER 1M LEASE RT
3971 SILVER 2M LEASE RT
2225 USD/CHF SPOT
2226 USD/DEM SPOT
2230 USD/FRF SPOT
3029 USD/USD SPOT

 Exposure to the Libor interest ratecurrency:
572 CHF LIBOR 1M
573 CHF LIBOR 2M
300 DEM LIBOR 1M
301 DEM LIBOR 2M
2458 USD LIBOR 6M
Example
Ex 1: Long 1000 oz gold 6 months forward
with: gold spot = 380 USD
6 mth USD Libor = 3.59% DF(6mth) = 0.98
6 mth gold lease rate = 1.25%
gold 6 mth forward = 383 USD
Gold spot 2294 Delta expressed as an equivalent position in gold spot (ounces)
Gold lease rate 6M 2332 Sensitivity to a 1 bp increase in gold lease rate
USD LIBOR 6M 2458 Sensitivity to a 1 bp increase in Libor rate
25/06/1995 xxxxxx 2294 xxxxxx 980 xx
25/06/1995 xxxxxx 2332 xxxxxx -18 xx USD

V.1.3 PRECIOUS METAL OPTION
Overview
An option on precious metal has to be reported through its delta, the sensitivity of the option to a change in the precious
metal price, and its vega, the sensitivity to a 1% absolute increase in the volatility.
Consider an option on a precious metal:
Where: PVal1 is the delta of the position expressed in ounces of an equivalent precious metal spot position
PVal2 is the sensitivity to a 1% absolute increase in the volatility (vega).
A PRC identifying the exposure must be included. A few PRCs are shown in the tables below:
2294 GOLD SPOT
3957 PALLADIUM SPOT
2316 PLATINUM SPOT
3958 RHODIUM SPOT
2305 SILVER SPOT
 Exposure to the precious metal implied volatility, t:
2295 GOLD 1M VOLATILITY
2296 GOLD 2M VOLATILITY
2306 SILVER 1M VOLATILITY
2307 SILVER 2M VOLATILITY
... ...

V.2 BASE METAL AND ENERGY
V.2.1 BASE METAL AND ENERGY FORWARD / FUTURE
Overview
The methodology for estimating the market risk of a forward/future position on base metal or energy is based on the
volatility of the forward prices. The risk is not decomposed into a spot and an interest rate risk as it is the case for a
currency or precious metal forward contract.
The sensitivity must be expressed in term of quantity: metric tons for base metal, barrels for crude oil, gallons for refined
products according to the usage in the market.
ex: What is VaR of a long position of 1000 bbl WTI forward 3mth, in USD ?
with:
WTI forward 3mth = 22 USD
DF (USD, 3 mth) = 0.98
Vol (WTI) = 0.36 USD/bbl
The sensitivity required by VaR is the ‘PV’ of the position: 10000.98 = 980
VaR = SensitivityVolatility(WTI forward 3mth, in USD)2
= 9800.362 = 705 USD
Interest rate risk on the unrealized P/L in case of a forward must be taken into account as mentionned in the
example (see V).
The risk factors covering the commodity exposures are associated with the volatility of time series expressed in the
following units: USD/ounce, USD/ton, USD/barrel, USD/gallon. This means that when the underlying commodity is
expressed in a currency other than USD, the position has to be decomposed into the risk related to the dollar price of the
commodity and the risk of a FX forward (see example given in V.Commodity).
Consider a Base metal or energy forwards/futures position, with maturity t. This forward position must be decomposed
into the following exposures:
 Exposure to Base metal/Energy: PVal1 = Quantity of product (expressed in standard unit). The quantity must be
discounted (using the domestic yield curve) in case of a Forward contract and not in case of a future.
The standard units are: base metal: tons
crude oil: barrels
oil products: according to the conventions (tons, gallons, barrels)
natural gas: MMBtu
 In the case the underlying commodity is not denominated in USD, add a FX forward exposure (see example 2).

 Exposure to the base metal/energy price:
4650 COPPER 3M
4651 COPPER 4M
3958 TAPIS CRUDE OIL 4M
2305 SINGAPORE UNLEADED GASOLINE 2Y
 Exposure to spot FX rate:
2225 USD/CHF SPOT
2226 USD/DEM SPOT
2230 USD/FRF SPOT
3029 USD/USD SPOT
 Exposure to the Libor interest ratecurrency:
572 CHF LIBOR 1M
573 CHF LIBOR 2M
300 DEM LIBOR 1M
301 DEM LIBOR 2M
2458 USD LIBOR 6M
Example 1: Commodity Forward WTI in USD
Long 100’000 barrels WTI, 3 months forward, for 20 USD/bbl, forward price is now 21 USD/bbl
DF(USD,3mth) = 0.985, USD 3mth interest rate = 6%
Q (quantity in bbl): 100’000 bbl
FUSD/WTI, t=0 (forward price WTI in USD at transaction time): 20 USD
DF3m (3months discount factor): 0.985
Generate 1 record in the PVT file with:
WTI Crude Oil 3M 4200  of barrels of WTI crude oil: 1000000.985 = 98500
Note that if the contract is a future, the sensitivity should not be discounted (in our example: 100000).
25/06/1995 xxxxxx 4200 xxxxxx 98500 xx

Example 2: Commodity Forward WTI in CAD
Long 100’000 barrels WTI, 3 months forward price (t = 0) 25 CAD/bbl, current forward price is 24 CAD/bbl
DFUSD = 0.985, USD 3months interest rate = 6%, CAD 3months interest rate = 4%.
USD/CAD 3 months forward = 1.25
Q (quantity of WTI crude oil in bbl): 100’000 bbl
QF (“Future equivalent quantity): 100’000 bbl* DFUSD = 98’500 bbl
FCAD/WTI,t=0 (forward price WTI in CAD at transaction time): 25 CAD/bbl
FCAD/WTI,t (current forward price WTI in CAD): 24 CAD/bbl
FUSD/CAD,t (current forward USD/CAD FX rate): 0.8 USD/CAD
SUSD/CAD,t (current spot USD/CAD FX rate): 0.796 USD/CAD
FUSD/WTI,t (current forward price WTI in USD): FCAD/WTI,t  SUSD/CAD,t = 19.2 USD/bbl
DFUSD (current USD discount factor): 0.985
leading to:
Sensitivity to the WTI USD 3months price: QF = 98’500 bbl
FX sensitivity: USD/CAD FX Spot: -QFFCAD/WTI, t=0 = -98’50025= -2’462’000 CAD
Interest rate sensitivity: USD PVBP: QF(FUSD/WTI, t - FUSD/WTI, t=0 )(DFUSD)/(rUSD)
 100’000(24*0.796-25*0.796)(-0.0001)0.25 = 2 USD
WTI Crude Oil 3M 4200  of barrels of WTI crude oil: 100’0000.985 = 98’500
FX/interest rate exposures:
USD/CAD SPOT 2224 -2’462’000 CAD
USD LIBOR 3M 2457 2 USD
25/06/1995 xxxxxx 4200 xxxxxx 98500 xx
25/06/1995 xxxxxx 2224 xxxxxx -2462000 xx CAD

V.2.2 BASE METAL and ENERGY OPTION
Overview
An option on base metal or energy product is reported through its delta, the sensitivity of the option to a change in the
commodity price, and its vega, the sensitivity to a 1% absolute increase in the volatility.
Consider an option on a commodity:
Where: PVal1 is the delta of the position expressed in “standard” units of the equivalent position in the commodity, according
to the currency of the time series where the PRC is mapped to.
PVal2 is the sensitivity of the position to a 1% absolute increase in the volatility (vega).
A few PRCs are shown in the tables below:
 Exposure to the base metal/energy price:

4650 COPPER 3M
4651 COPPER 4M
3958 TAPIS CRUDE OIL 4M
2305 SINGAPORE UNLEADED GASOLINE 2Y
... ...
 Exposure to the base metal/energy price implied volatility
 :
5262 COPPER 1M VOLATILITY
5263 COPPER 2M VOLATILITY
4812 WTI CRUDE OIL 1M VOLATILITY
4813 WTI CRUDE OIL 2M VOLATILITY
... ...
Example Commodity Option WTI in USD
Short Call option, WTI in USD, 3 month
Quantity = -100’000 bbl, delta = 0.4. vega = 0.1 USD/bbl.
WTI Crude Oil 3M 4200 Sensitivity in barrels: -1000000.4 = -40000 bbl
WTI CRUDE OIL 2M VOLATILITY 4814 Vega in USD: -1000000.1 = -10000 USD
If the premium is deferred by one month, the interest rate sensitivity on that amount and the premium amount should
be sent as well.
25/06/1995 xxxxxx 4200 xxxxxx -40000 xx
25/06/1995 xxxxxx 4814 xxxxxx -10000 xx USD

VI. SIMULATION BASED VALUE-AT-RISK AND NON-LINEAR RISK
Linear VaR is a statistical approach based on an assumed distribution of market movements- in this case, a normal probability
distribution- from which certain confidence bands are derived. Here, standard trading VaR is defined as the value that can be
lost over a one day horizon such that there is only a 2.3% probability of losing an even larger amount in that same period (a 2
standard deviation move). Calculating VaR requires an estimate of the risk present in each market, and of the linear
sensitivities of trading portfolios to the risk parameters. Estimation of the risk present in each market requires detailed
analysis of time series of market data. The result of this analysis is a set of volatilities and correlations of approximately 1000
time series. Linear risks consist of positions in underlying assets, as well as deltas and volatility risks of option books; e.g.
positions in foreign exchange, sensitivities expressed as a present value of one basis point (henceforth PVBP) rise in interest
rates, option vegas, etc. The volatility (or standard deviation) of the market and the sensitivity of the position to the market
together give linear VaR of a single position. Correlations between markets account for diversification. Thus far, the
methodology for linear risks has required relatively simple computations based on matrix algebra.
When the relationship between return on portfolios and changes in market rates is not constant, for instance in option
portfolios because of the convexity of the return profile, one can no more estimate exposures by multipling sensitivities with
risk factors. The so-called ‘closed form’ method (assuming a given level of confidence for each number of standard
deviations) does not apply. Simulation methods (reproducing by numerical methods a distribution of the market underlyings
and obtaining the actual change in P&L of the portfolios) must be used instead. The following example (taken from a study
written by Lukas Gubler) illustrates this fact:
Long straddle position (long call , long put, same strike):
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
-0 .1 6
-0 .1 2
-0 .0 8
-0 .0 4
0
0 .0 4
0 .0 8
0 .1 2
0 .1 6
-3
-2
-1
0
1
2
3
4
P & L
Un d e r ly in g
Im p lie d V o la tility
P & L S u rfa c e
Linear VaR (max. daily loss with 97.7% confidence) gives a loss of 1.2, whereas the simulated distribution of exposures
leads to a value of -0.95:
H isto g ra m
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
-1.4
-1.1
-0.8
-0.5
-0.2
0.1
0.4
0.7
1
1.3
1.6
1.9
2.2
2.5
2.8
Mor
e
Ex p o s u r e
Frequency
Fre q u e n c y

VI.1 REPORTING P&L MATRICES FOR VALUE-AT-RISK CALCULATION
VI.1.1 WHO REPORTS P&L MATRICES ?
Portfolios which carry non-linear risk and which currently report the linear sensitivities to the VaR system are required to
report in addition a P&L lookup table to the simulation based calculator. The linear part of their risk will still be captured
through the PVT/EQT interface and the P&L lookup table will only serve to calculate the non-linear add-on only. Therefore,
term-structure risk of yield curves and volatilities are captured through the linear VaR, same as the specific risk of equities.
VI.1.2 AVOIDING DOUBLE COUNTING OF LINEAR POSITIONS
In order to avoid double counting of linear positions, there is additional information needed, either
a) an additional linear matrix which corresponds to the positions fed through the PVT/EQT interface, or
b) a description (Linear Equation) in the matrix interface file which allows the construction of the linear matrix.
Solution a) is preferred, but whatever is implemented, it is of utmost importance that the feeds for linear and non-linear VaR
are consistent.
In order to calculate the overall VaR one needs to combine the non-linear matrix measures with the existing linear exposure
values and aggregate the two measures together without double counting exposure. Since the matrix P/L computation contains
linear as well as the non-linear effects of the defined shocks, this matrix has to be decomposed into a linear matrix and a
delta/vega neutral non-linear matrix from which the non-linear effects are segregated. Businesses should therefore provide
both a full matrix and a linear matrix for each book. A delta/vega neutral matrix, which focuses on the incremental risk due to
the convexity or gamma in the portfolio, is then derived from the two matrices and used for the non-linear VaR evaluations.
Alternatively, instead of providing the linear P&L matrix elements, a second set of equations for each axis can be provided to
indicate how a linear matrix can be calculated from the existing linear PVT sensitivities. This functionality requires that
the ReptID used for the full P&L matrix and the corresponding PVT data are the same. The linear matrix is generated
with the same grid points as used for the full matrix.
VI.1.3 LEVEL OF CALCULATION/ORGANIZATION
Each P&L lookup table should correspond to a unique ReptID. If hedges are not included in the P&L lookup table, they
should be referenced by a distinct ReptID. All linear positions which are already included in a lookup table must have the
same ReptID as this lookup table if a linear matrix is to be constructed via the linear equations. This allows to prevent double-
counting.
VI.1.4 THETA (TIME DECAY)
In option books, theta effect has to be taken into account. Since all positions are revalued as of the Trade Date, risk induced
by the time decay (depending on the holding period of the portfolio) must be calculated. Theta is delivered either as an entry
in the P&L matrix file or through the PVT feed (in both cases, associated with a corresponding PRC).
VI.1.5 GUIDELINES FOR MARKET SHOCKS (GRID SPACING)
Grid spacing are specified as percentage of the current level except for interest rates and implied volatility where
absolute shifts are specified. Shifts are not defined in terms of standard deviation. Shifts that would produce negative
underlying values should be provided with the same P&L as the nearest real point.
VI.1.6 TERM STRUCTURE OF IMPLIED VOLATILITY
A volatility weighting scheme takes the decreasing volatility of implied volatility into account. It should be calculated based
on a Principal Component Analysis (i.e. transforming the statistical data to get a diagonal covariance matrix ordered from
largest variance to the smallest). The weighting scheme has to be consistent with the reporting of the linear exposures.
In particular, if linear implied volatility exposures (vega) are reported in the PVT file split by the volatility ladder and
mapped to time series built according to a maturity weighting scheme, the same volatility weights have to be used for the
construction of the P&L lookup table.

VI.1.7 SPECIFICATION OF THE LOOKUP TABLE BY PRODUCT GROUP
The Lookup table (P&L Matrix) shows the profit or loss as of the current TradeDate (today) for different shocks defined by
the risk manager of the affected business. Here some highlights for the 4 Risk Classes:
Equities:
Calculation of P&L lookup table should be done on index level. Single stock options have to be translated into index
equivalents using (VaR-) Betas, and the reporting of stock deltas through the EQT is mandatory. Specific risk is captured
through the linear PVT/EQT reporting. Non-linear P&L tables of stock positions are aggregated using Beta-weighting. This
weighting should be applied along the axis of the underlying index.
Linear PVT and EQT: the corresponding index-delta position, the vega exposure as well as stock specific data as required by
the linear VaR System (EQT-file) have still to be provided. Vega positions may not be weighted, as before. Term structure of
volatility is captured through the linear Vega positions in the PVT.
The underlying axis of the P&L Matrix may be :
 the level of the index (.900,1000,1100..)
 the change in the level (-100,0,100..)
 a proportional change in the level of the index (-0.1,0,0.1 -10%,0,+10%).
Note: changes in the level are not recommended for equities because the volatility is defined in proportional terms (returns)
making a conversion (using adjustment factors) necessary before the simulation run.
Currencies:
For Foreign Exchange products, calculations have to be done at currency pair level (currency versus USD or cross-currency
exchange rates). Volatility and correlation information for the exchange rate of the main currency pairs is available in the
VaR system (since Market Hierarchy release 2.3).
The underlying axis of the P&L Matrix may be:
 the level of the FX rate (..1.9,2.0,2.1..)
 the change in the level of the FX rate (..-0.1,0,0.1 ..)
 a proportional change in the level of the FX rate (..-0.1,0,0.1.-10%,0,+10%).
Note: changes in the level are not recommended for FX rates because the volatility is defined in proportional terms (returns).
Fixed Income:
Calculations should be done for each currency and within the currency for each of the groups defined by the CommodityCode
in the VaR market hierarchy, for instance:
1. Corporate (e.g. Corporate Bond Options)
2. Government (e.g. Government Bond Options)
3. Libor (e.g. Swaptions and Cap/Floors, Exotics).
Term structure risk is captured through the existing linear reporting. The yield curve is shocked with absolute basis points as a
deviation from the current level. Lookup-tables are generated using parallel shift of the whole yield curve.
 the level of the interest rate, expressed in bp, % or in decimal (..1.8,2.0,2.2. 1.8%,2%,2.2% ), the representation
being defined in the axis equation
 the change in the level of the interest rate, expressed in bp, % or in decimal (..-20,0,20...-20bp,0,+20bp..)
 a proportional change in the level of the interest rate (..-0.1,0,0.1.-10%,0,+10% proportional change).
Note: proportional changes are not recommended for interest rates because the volatility is defined in absolute terms (bp).
Commodities:
The reporting of P&L lookup tables should be done at the level of each underlying product:
1. Precious Metal Gold, Silver, Platinum
2. Base Metal Aluminum, Copper, Lead, Zinc
3. Energy Crude Oil: WTI crude, Brent crude, Tapis crude, Dubai crude, Oil Products: Naphta, etc.
The P/L Lookup table is calculated as of today. Gold has to be reported like a currency. The P&L lookup table will aggregate
P/L resulting from options covering different maturities and strikes for a specific product.
 the price of the commodity
 the change in the price of the commodity
 a proportional change in the price of the commodity
Note: changes in the price are not recommended for commodities because the volatility is defined in proportional terms
(return).

VII. GENERATING THE FEEDER FILE
VII.1 USING THE STATIC DATA EXTRACTION UTILITY
Programmers and Feeder Contacts who maintain mapping programs can use the Static Data Extraction Utility to synchronize
other databases with VaR or to obtain information required by their interface. The tab-delimited file format facilitates
importing the data into applications such as MS Access, MS Excel or Oracle. The following objects, which are tables, views,
or the result of database queries, are included in the daily extracts (in the varextr HOME directory):
Object File Name Comments
Currencies Currencies.bcp All columns of the underlying table
FXSpotRates FXSpotRates.YYYYMMDD.bcp All columns of the underlying table for TradeDate YYYYMMDD
RiskDelegationHier RiskDelegationHier.bcp All codes and descriptions, from function to ReportID
MajorMinorHier MajorMinorHier.bcp All codes and descriptions, from function to ReportID
MktHier MktHier.bcp Risk Class, Broad Risk, Commodity, PRC, Risk Sensitivity Type
PositionCodes PositionCodes.bcp PRC, PRC Name, Risk Sensitivity Type, Currency of TS, Maturity Code
ReportID ReportID.bcp ReportID, Description
Employees Employees.bcp EmployeeCode, Location Code, First & Last Name, Phone, E-mail, Comments
VaRFeeds VaRFeeds.bcp FeedID, LocationCode, Description, ContactCode
TimeSeriesCodes TimeSeriesCodes.bcp All columns of the underlying table
Extended PRC Attributes PRCattr.bcp All the information about PRCs, including new extended attributes
To facilitate searching for PRCs, for instance, in datafeed preparation programs, a PRC file named PRCattr.bcp is made
available in the varextr HOME directory. This tab-delimited file provides the following original and derived attributes:
1. Position Risk Code (from the database)
2. Position Risk Name (from the database)
3. Risk Sensitivity Type (from the database)
4. Currency of the Time Series it is mapped to (from the database)
5. Maturity Code (from the database)
6. Product (derived from the PRC description)
7. Currency to which the PRC pertains (derived from the PRC description)
8. Maturity (in months)
9. Rating of the corporate which issued the bond (when applicable)
10. Option Expiration (when applicable)
11 Reference Currency of the FX ccy pair (when applicable)
(note that no attributes are assigned for PRCs which are recommended to not be used anymore).
PRC Position Risk Name Risk Sensitivity Currency of TS Maturity Product Currency of PRC Mat. in months Rating Option Expir.
1 USD GOVT 1M USDVBP USD 1M GOVT USD 1
69 USD A CORPORATES 1M USDVBP USD 1M CORP USD 1 A
2225 USD/CHF SPOT PRINCPL CHF 0M SPOT CHF 0
6062 DEM SWAPTION 3M OPT 2Y SWAP VOL VEGA1% DEM 2Y SWAPTION DEM 24 3M

VII.1.1 POSITION RISK CODES NAMING CONVENTIONS
In the Position Risk Name field:
the first descriptor is generally a currency or a currency pair (e.g. USD, USD/DEM)
the second descriptor defines the product (e.g. GOVT, CORPORATES, GOVT OPTIONS)
finally, the third descriptor is the Maturity of the risk.
In the Market Hierarchy, all the Position Risk Names systematically follow a set of naming conventions. The table below
shows those conventions for the 4 Risk Classes (Commodity, Equity, Foreign Exchange, Interest Rate).
Position Risk Name conventions for Commodities:
RiskClass Product Product Description RiskSens.Type Position Risk Name Convention
Commodity ALUMINIUM Aluminium NOTIONAL <ProductCode> <Maturity>
Commodity ALUMINIUM Aluminium VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity COPPER Copper NOTIONAL <ProductCode> <Maturity>
Commodity COPPER Copper VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity NGS Natural Gas NOTIONAL <Name> <ProductCode> <Maturity>
Commodity NGS Natural Gas VEGA1% <Name> <ProductCode> <Maturity> VOL
Commodity GASOIL Gasoil NOTIONAL <Name> <Maturity>
Commodity GASOIL Gasoil VEGA1% <Name> <Maturity> VOL
Commodity GASOLINE Gasoline NOTIONAL <Name> <Maturity>
Commodity GASOLINE Gasoline VEGA1% <Name> <Maturity> VOL
Commodity GOLD Gold OUNCES <ProductCode> SPOT
Commodity GOLD Gold VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity GOLD Gold USDVBP <ProductCode> <Maturity> LEASE RT
Commodity HSFO High Sulfur Oil NOTIONAL <Name> <Maturity>
Commodity HSFO High Sulfur Oil VEGA1% <Name> <Maturity> VOLATILITY
Commodity JETFUEL Jet Fuel NOTIONAL <Name> <Maturity>
Commodity JETFUEL Jet Fuel VEGA1% <Name> <Maturity> VOL
Commodity LEAD Lead NOTIONAL <ProductCode> <Maturity>
Commodity LEAD Lead VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity LSFO Low Sulfur Oil NOTIONAL <Name> <Maturity>
Commodity LSFO Low Sulfur Oil VEGA1% <Name> <Maturity> VOLATILITY
Commodity NAPHTA Naphta NOTIONAL <Name> <Maturity>
Commodity NAPHTA Naphta VEGA1% <Name> <Maturity> VOLATILITY
Commodity NICKEL Nickel NOTIONAL <ProductCode> <Maturity>
Commodity NICKEL Nickel VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity OIL Crude Oil NOTIONAL <Name> <Maturity>
Commodity OIL Crude Oil VEGA1% <Name> <Maturity> VOLATILITY
Commodity PALLADIUM Palladium OUNCES <ProductCode> SPOT
Commodity PALLADIUM Palladium VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity PALLADIUM Palladium USDVBP <ProductCode> <Maturity> LEASE RT
Commodity PLATINUM Platinum OUNCES <ProductCode> SPOT
Commodity PLATINUM Platinum VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity PLATINUM Platinum USDVBP <ProductCode> <Maturity> LEASE RT
Commodity RHODIUM Rhodium OUNCES <ProductCode> SPOT
Commodity RHODIUM Rhodium VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity RHODIUM Rhodium USDVBP <ProductCode> <Maturity> LEASE RT
Commodity SILVER Silver OUNCES <ProductCode> SPOT
Commodity SILVER Silver VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity SILVER Silver USDVBP <ProductCode> <Maturity> LEASE RT
Commodity TIN Tin NOTIONAL <ProductCode> <Maturity>
Commodity TIN Tin VEGA1% <ProductCode> <Maturity> VOLATILITY
Commodity ZINC Zinc NOTIONAL <ProductCode> <Maturity>
Commodity ZINC Zinc VEGA1% <ProductCode> <Maturity> VOLATILITY

Position Risk Name conventions for Equity, FX and Interest Rate
RiskClass Product Product Description RiskSens.Type Position Risk Name Convention
Equity CONVSENT Convertible Sentiment Risk RSKCAP CONV SENT RISK- <CCY>
Equity EQUITYINDEX Equity Index NOTIONAL <Index Name> FUTURE
Equity EQUITYINDEX Equity Index PRINCPL <Index Name> EQUITY
Equity EQUITYINDEX Equity Index VEGA1% <CCY> EQUITY VOLATILITY <Maturity>
FX SPOT FX Spot PRINCPL USD/<CCY> SPOT
FX FXOPT FX Option VEGA1% USD/<CCY> FX OPT <Maturity> VOL
Interest Rate ABS Asset Backed Security ccyVBP <CCY> ASSET BACKED <Maturity>
Interest Rate ABSSPR ABS Spread USDVBP USD ASSET-BACKED SPREAD <Maturity>
Interest Rate AGY Agency Bond ccyVBP <CCY> AGENCY <Maturity>
Interest Rate AGYSPR Agency Spread USDVBP USD AGENCY SPREAD <Maturity>
Interest Rate BRADY Brady Bond PRINCPL <Name>
Interest Rate CORP Corporate Bond ccyVBP <CCY> CORPORATES <Maturity>
Interest Rate CORP Corporate Bond USDVBP USD <Rating> <CORPORATES> <Maturity>
Interest Rate CORPBANK Corporate Bank/Finance USDVBP USD <Rating> CORPORATE BANK/FINANCE <Maturity>
Interest Rate CORPINDUST Corporate Industrial USDVBP USD <Rating> CORPORATE INDUSTRIALS <Maturity>
Interest Rate CORPMBS Corporate Based MBS USDVBP USD CORP BASED MORTGAGE BACKED <Maturity>
Interest Rate CORPTELECOM Corporate Telecom/Utils USDVBP USD <Rating> CORPORATE TELECOM/UTILS <Maturity>
Interest Rate CORPYANKEE Corporate Yankee/Canada USDVBP USD <Rating> CORPORATE YANKEE/CANADA <Maturity>
Interest Rate GOVT Government Bond ccyVBP <CCY> GOVT <Maturity>
Interest Rate GOVTFUT Government Future ccyVBP <CCY> <Name> FUTURES <Maturity>
Interest Rate GOVTOPT Government Option ccyVBP <CCY> GOVT OPTIONS <Maturity>
Interest Rate GOVTOPT Government Option VEGA1% <CCY> GOVT BOND OPT <Maturity> VOL
Interest Rate GOVTREPO Government Repo USDVBP USD GOVT REPO <Maturity>
Interest Rate HYIELD High Yield USDVBP USD HIGH YIELD <Maturity>
Interest Rate HYIELD High Yield Sentiment PRINCPL USD HIGH-YIELD SENTIMENT <Maturity>
Interest Rate INDUSTSPR Industrial Spread USDVBP USD <Rating> INDUSTRIAL SPREAD <Maturity>
Interest Rate INDUSTSPR Industrial Spread ccyVBP <CCY> <Rating> INDUSTRIAL SPREAD TO SWAP<Maturity>
Interest Rate LIBOR Libor ccyVBP <CCY> LIBOR <Maturity>
Interest Rate LIBORCAP Libor Cap VEGA1% <CCY> 3M (LIBOR|PIBOR) IMPLIED VOL CAP <Maturity>
Interest Rate LIBORFUT Libor Future USDVBP USD LIBOR FUTURES (<Maturity>|STUB)
Interest Rate LIBORLOCAL Libor Local VEGA1% <CCY> <Maturity> LIBOR LOCAL VOL
Interest Rate LIBORMBS Libor Based MBS USDVBP USD LIBOR BASED MORTGAGE BACKED <Maturity>
Interest Rate LIBOROPT Libor Option USDVBP USD LIBOR OPTIONS <Maturity>
Interest Rate MBS Mortgage Backed Security USDVBP USD MORTGAGE BACKED <Maturity>
Interest Rate MBSSPR MBS Spread USDVBP USD MBS SPREAD RISK <Maturity>
Interest Rate OASMBS Option Adjusted Spread MBS USDVBP USD OAS MORTGAGE BACKED <Maturity>
Interest Rate OTHERREPO Other Repo USDVBP USD (OTHER REPO <Maturity>|REPO SPECIAL)
Interest Rate SWAPGOVT Swap-Government Spread USDVBP USD SWAP-GOVT SPREAD <Maturity>
Interest Rate SWAPGOVT Swap-Government Spread ccyVBP <CCY> GOVT SPREAD TO SWAP<Maturity>
Interest Rate SWAPTION Swaption VEGA1% <CCY> SWAPTION <Expiration> OPT <Maturity> SWAP VOL

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