Goldman Sachs 2000 Annual Report Download - page 43

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ket conditions. An inherent limitation of VaR is that past
changes in market risk factors, even when weighted toward
more recent observations, may not produce accurate pre-
dictions of future market risk. Moreover, VaR calculated for
a one-day time horizon does not fully capture the market
risk of positions that cannot be liquidated or offset with
hedges within one day. VaR also should be evaluated in
light of the methodology’s other limitations. For example,
when calculating the VaR numbers shown below, we assume
that asset returns are normally distributed. Nonlinear risk
exposures on options and the potentially mitigating impact
of intraday changes in related hedges would likely produce
nonnormal asset returns. Different distributional assump-
tions could produce a materially different VaR.
41
The following table sets forth the daily VaR for substantially all of our trading positions:
Daily VaR
(in millions) As of November Year Ended November 2000
Risk Categories 2000 1999 Average High Low
Interest rates $ 11 $ 13 $ 13 $19 $ 9
Currency rates 11 46113
Equity prices 17 18 21 30 13
Commodity prices 712 8 16 5
Diversification effect(1) (21) (22) (20) — —
Firmwide $ 25 $ 25 $ 28 37 20
(1) Equals the difference between firmwide daily VaR and the sum of the daily VaRs for the four risk categories. This effect arises because the four
market risk categories are not perfectly correlated.
The following chart presents the daily VaR for substantially all of our trading positions during 2000:
40
30
20
10
35
25
15
5
0
First Quarter Second Quarter Third Quarter Fourth Quarter
VaR
($ in millions)
Firmwide VaR