Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

Trend in VaR constituents The effectiveness of VaR as a risk management instrument is confirmed bythe results of the daily back-testing, which is based on the calculation of impliedprofits and losses. 4 In a scenario where volatility was consistently at high levels,the VaR limit for losses was breached on only one occasion with reference to theaggregate portfolio (compared to four breaches last year, which was exceptional)and twice for the trading book (as against three times last year). Both figures areperfectly in line with the theoretical level of 2-3 breaches per financial yearimplied in a value-at-risk model at 99%. The specific causes of the breacheswere the sharp changes in prices on share and bond markets, especially in Italy,which took place when the crisis involving peripheral Eurozone member statesflared up again and spreads on government bonds widened as a consequence.4Based on repricing the previous days’ positions using data from the following business day, in order toeliminate intraday trading items.386 –