SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank
Annual Report 2010 on Form 20-F
Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk 167
We continuously analyze potential weaknesses of our value-at-risk model using statistical techniques such as
back-testing, but also rely on risk management experience and expert opinion. Back-testing provides an analysis
of the predictive power of the value-at-risk calculations based on actual experience. We compare the hypothetical
daily profits and losses under the buy-and-hold assumption (in accordance with German regulatory
requirements) with the estimates from our value-at-risk model.
A committee with participation from Market Risk Management, Market Risk Operations, Risk Analytics and
Instruments, Finance and others meets on a quarterly basis to review back-testing results of our Group as a
whole and on individual businesses. The committee analyzes performance fluctuations and assesses the predictive
power of our value-at-risk model, which in turn allows us to improve and adjust the risk estimation
process accordingly.
We are committed to the ongoing development of our proprietary risk models, and we allocate substantial
resources to reviewing and improving them. Special attention is given to improving those parts of the value-atrisk
model that relate to the areas where losses have been experienced in the recent past. During 2010, improvements
were made to the value-at-risk calculation, including the following:
— Inclusion of Equity Dividend Risk
— Refined methodology for securitization positions
— Inclusion of the market risk of Sal. Oppenheim and BHF-BANK
In addition, we have introduced a process of systematically capturing and evaluating immaterial risks currently
not captured in our value-at-risk model.
Value-at-Risk at Postbank
The Postbank also uses the value-at-risk concept to quantify and monitor the market risk it assumes. Postbank
also uses a Monte Carlo Simulation for calculation of trading book risks across all portfolios, transforming heterogeneous
types of market risk into a single measure of risk. The risk factors taken into account in the value-atrisk
include yield curves, equity prices, foreign exchange rates, and volatilities, along with risks arising from
changes in credit spreads. Correlation effects between the risk factors are derived from historical data.
The Postbank value-at-risk is currently not consolidated into the value-at-risk of the remaining Group.
Economic Capital for Market Risk
Economic capital for market risk measures the amount of capital we need to absorb very severe unexpected
losses arising from our exposures over the period of one year. “Very severe” in this context means that economic
capital is set at a level to cover with a probability of 99.98 % the aggregated unexpected losses within
one year. The market risks from Postbank have been modeled into the Group’s Economic Capital results.
We calculate economic capital using stress tests and scenario analyses. The stress tests are derived from
historically observed severe market shocks. The resulting losses from these stress scenarios are then aggregated
using correlations observed during periods of market crises, to reflect the increase in correlations which
occurs during severe downturns.
The stress tests are augmented by subjective assessments where only limited historical data is available, or
where market developments lead us to believe that historical data may be a poor indicator of possible future
market scenarios.