2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYMarket riskStressed VaRA Stressed VaR (SVaR) is calibrated on a fixed one year period includinga crisis period to keep a minimum level to the VaR. A 12 month period(31 March 2008 to 31 March 2009) has been considered as a referenceperiod for the calibration of the Stressed VaR. This choice is subject toannual review. For the calculation of the capital requirement, this is ontop of the VaR to correct the “short memory” of the VaR.4th quarter 2011 ( * )➤ TABLE 37: STRESSED VALUE AT RISK (10 DAYS – 99%)Year to 31 Dec. 2012In millions of eurosMinimum Average Maximum 31 December 2012Average 31 December 2011Stressed Value at Risk 145 201 325 220 296 267(*) The first CRD 3 application date was 31 December 2011.5Incremental Risk Charge (IRC)The IRC approach measures losses due to default and ratings migration atthe 99.9% confidence interval over a capital horizon of one year, assuminga constant level of risk on this horizon. The approach to capture theincremental default and migration risks covers all positions subject toa capital charge for specific interest rate risk including all governmentbonds, but excluding securitisation positions and n-th-to-default creditderivatives.The model is currently used in the risk management processes. Thismodel was approved by the French banking supervisor (Autorité deContrôle Prudentiel).The calculation of IRC is based on the assumption of a constant level ofrisk over the one-year capital horizon, implying that the trading positionsor sets of positions can be rebalanced during the one-year capital horizonin a manner that maintains the initial risk level, measured by the VaR orby the profile exposure by credit rating and concentration. This rebalancefrequency is called the liquidity horizon.The model is built around a rating-based simulation for each obligor,which captures both the risk of the default as well as the risk of ratingmigration. The dependence among obligors is based on a multi-factorasset return model. The valuation of the portfolios is performed in eachsimulated scenario. The model uses a constant one year liquidity horizon.It has been internally validated by an independent unit. The reviewconsidered the consistency of the proposed methodologies, the scopeof the risk factors and the consistency between the calibration of modelparameters and their usage in the course of simulations with a furtherfocus on the production and on the definition of perimeter.4th quarter 2011 ( * )➤ TABLE 38: INCREMENTAL RISK CHARGE CAPITAL REQUIREMENTSYear to 31 Dec. 2012In millions of eurosMinimum Average Maximum 31 December 2012Average 31 December 2011Incremental Risk Charge 148 258 561 274 515 381(*) The first CRD 3 application date was 31 December 2011.Correlation portfolio (Comprehensive RiskMeasure - CRM)The corporate correlation activity is an activity that consists of tradingand risk managing mainly corporate CDO, to less extent corporate CDO 2and their hedges using single name CDS, CDS indices and i ndex tranches.The valuation framework use both market observable prices (CDS, i ndexand index tranche) and model prices to value the bespoke CDO which areless observable than the previously mentioned products.This activity falls under the structured credit activity trading withinBNP Paribas Fixed income.2902012 Registration document and annual financial report - BNP PARIBAS