La banque d'un monde qui change 2004 - BNP Paribas

NOTE 25BNP PARIBAS GROUP EXPOSURE TO MARKET RISKS ON FINANCIALINSTRUMENT TRANSACTIONS AT 31 DECEMBER 2004Since 31 March 2000, the BNP Paribas Group uses a singleinternal Value at Risk system to estimate the potential lossesthat could be incurred in the case of an unfavourablechange in market conditions.Potential losses are measured based on “Gross Earningsat Risk” (GEaR). GEaR takes into account a large numberof variables which could affect the value of the portfolios,including interest rates, lending margins, exchange rates,the price of the various securities, their volatilities andthe correlations between variables.The system uses the latest simulation techniques and includesprocessing of non-linear (convex) positions, as well asthe volatility risk generated by options. Daily movementsin the different variables are simulated to estimate potentiallosses on market transactions under normal market conditionsand assuming normal levels of liquidity.The French banking authorities (Commission Bancaire)have approved this internal model, including the followingmethodologies:• capture of the specific interest rate risk arising frompotential variations in lending margins, in order to activelyand accurately measure risks associated with tradingin credit risks.Values at Risk set out below have been determined usingthe internal model. The model parameters have been setby the method recommended by the Basel Committee forthe determination of estimated values at risk (“Supplementto the Capital Accord to Incorporate Market Risks”).The main measurement parameters are as follows:• change in the value of the portfolio over a holding periodof 10 trading days;• confidence level of 99% (i.e. over a 10-day holding period,potential losses should not exceed the correspondingGEaR in 99% of cases);• historical data covering 260 days’ trading.For the period from 1 January to 31 December 2004,the total average Value at Risk amounted to EUR 93 million,taking into account the EUR 57 million effect of nettingdifferent types of risk. These amounts break down as follows:• capture of the correlation between categories of risk factors(interest rate, currency, commodity and equity risks) in orderto integrate the effects of diversifying inherent risks;Value at Risk (10 days – 99%): Analysis by type of riskIn millions of euros 1 January – 31 December 2004 31 December 2004 31 December 2003 31 December 2002AverageInterest rate risk 89 57 92 77Equity risk 47 47 43 86Currency risk 6 9 9 8Commodity risk 8 8 6 7Netting effect (57) (60) (81) (91)Total 93 61 69 87250BNP PARIBAS - ANNUAL REPORT 2004