Goldman Sachs 2012 Annual Report Download - page 134

Notes to Consolidated Financial Statements
Significant Unobservable Inputs
The table below presents the ranges of significant
unobservable inputs used to value the firm’s level 3
derivatives. These ranges represent the significant
unobservable inputs that were used in the valuation of each
type of derivative. The ranges, averages and medians of
these inputs are not representative of the appropriate inputs
to use when calculating the fair value of any one derivative.
For example, the highest correlation presented in the table
for interest rate derivatives is appropriate for valuing a
specific interest rate derivative but may not be appropriate
for valuing any other interest rate derivative. Accordingly,
the ranges of inputs presented below do not represent
uncertainty in, or possible ranges of, fair value
measurements of the firm’s level 3 derivatives.
Level 3 Derivative
Product Type
Net Level 3 Assets/(Liabilities)
as of December 2012
(in millions)
Significant Unobservable Inputs
of Derivative Pricing Models
Range of Significant Unobservable
Inputs (Average / Median) 1
as of December 2012
Interest rates $(355) Correlation 2
Volatility
22% to 97% (67% / 68%)
37 basis points per annum (bpa) to
59 bpa (48 bpa / 47 bpa)
Credit $6,228 Correlation 2
Credit spreads
Recovery rates
5% to 95% (50% / 50%)
9 bps to 2,341 bps
(225 bps / 140 bps) 3
15% to 85% (54% / 53%)
Currencies $35 Correlation 265% to 87% (76% / 79%)
Commodities $(304) Volatility
Spread per million British Thermal units
(MMBTU) of natural gas
Price per megawatt hour of power
Price per barrel of oil
13% to 53% (30% / 29%)
$(0.61) to $6.07 ($0.02 / $0.00)
$17.30 to $57.39 ($33.17 / $32.80)
$86.64 to $98.43 ($92.76 / $93.62)
Equities $(1,248) Correlation 2
Volatility
48% to 98% (68% / 67%)
15% to 73% (31% / 30%)
1. Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average
greater than the median indicates that the majority of inputs are below the average.
2. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (51)% to 66% (Average: 30% / Median: 35%) as of
December 2012.
3. The difference between the average and the median for the credit spreads input indicates that the majority of the inputs fall in the lower end of the range.
132 Goldman Sachs 2012 Annual Report