Goldman Sachs 2015 Annual Report Download - page 113

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Model Review and Validation
Our VaR and stress testing models are regularly reviewed
by Market Risk Management and enhanced in order to
incorporate changes in the composition of positions
included in our market risk measures, as well as variations
in market conditions. Prior to implementing significant
changes to our assumptions and/or models, Model Risk
Management performs model validations. Significant
changes to our VaR and stress testing models are reviewed
with our chief risk officer and chief financial officer, and
approved by the Firmwide Risk Committee.
See “Model Risk Management” for further information
about the review and validation of these models.
Systems
We have made a significant investment in technology to
monitor market risk including:
‰An independent calculation of VaR and stress measures;
‰Risk measures calculated at individual position levels;
‰Attribution of risk measures to individual risk factors of
each position;
‰The ability to report many different views of the risk
measures (e.g., by desk, business, product type or legal
entity); and
‰The ability to produce ad hoc analyses in a timely
manner.
Metrics
We analyze VaR at the firmwide level and a variety of more
detailed levels, including by risk category, business, and
region. The tables below present, by risk category, average
daily VaR and period-end VaR, as well as the high and low
VaR for the period. Diversification effect in the tables
below represents the difference between total VaR and the
sum of the VaRs for the four risk categories. This effect
arises because the four market risk categories are not
perfectly correlated.
The table below presents average daily VaR.
$ in millions
Risk Categories
Year Ended December
2015 2014 2013
Interest rates $47 $51 $63
Equity prices 26 26 32
Currency rates 30 19 17
Commodity prices 20 21 19
Diversification effect (47) (45) (51)
Total $ 76 $72 $80
Our average daily VaR increased to $76 million in 2015
from $72 million in 2014, reflecting an increase in the
currency rates category due to higher levels of volatility,
partially offset by a decrease in the interest rates category
due to decreased exposures.
Our average daily VaR decreased to $72 million in 2014
from $80 million in 2013, primarily reflecting a decrease in
the interest rates category due to decreased exposures and
lower levels of volatility, and a decrease in the equity prices
category principally due to lower levels of volatility. These
decreases were partially offset by a decrease in the
diversification benefit across risk categories.
The table below presents period-end VaR, and high and
low VaR.
$ in millions
Risk Categories
As of December
Year Ended
December 2015
2015 2014 High Low
Interest rates $43 $53 $62 $38
Equity prices 24 19 52 18
Currency rates 31 24 47 18
Commodity prices 17 23 38 13
Diversification effect (48) (42)
Total $ 67 $77 $94 $57
Our daily VaR decreased to $67 million as of
December 2015 from $77 million as of December 2014,
primarily reflecting decreases in the interest rates and
commodity prices categories due to decreased exposures,
and an increase in the diversification benefit across risk
categories. In addition, the currency rates and equity prices
categories increased due to higher levels of volatility.
During 2015, the firmwide VaR risk limit was temporarily
raised on two occasions in order to facilitate client
transactions. Separately, in March 2015, the firmwide VaR
risk limit was reduced, reflecting lower risk utilization over
the last year.
During 2014, the firmwide VaR risk limit was not
exceeded, raised or reduced.
Goldman Sachs 2015 Form 10-K 101