JP Morgan Chase 2010 Annual Report Download - page 144

Management’s discussion and analysis
144 JPMorgan Chase & Co./2010 Annual Report
compared with $57 million for 2009. Decreases in CIO and Mort-
gage Banking VaR for 2010 were again driven by the decline in
market volatility and position changes. The decline in Mortgage
Banking VaR at December 31, 2010, reflects management’s deci-
sion to reduce risk given market volatility at the time.
The Firm’s average IB and other VaR diversification benefit was $59
million or 37% of the sum for 2010, compared with $82 million or
28% of the sum for 2009. The Firm experienced an increase in the
diversification benefit in 2010 as positions changed and correla-
tions decreased. In general, over the course of the year, VaR expo-
sure can vary significantly as positions change, market volatility
fluctuates and diversification benefits change.
VaR back-testing
The Firm conducts daily back-testing of VaR against its market risk-
related revenue, which is defined as the change in value of: princi-
pal transactions revenue for IB and CIO (less Private Equity
gains/losses and revenue from longer-term CIO investments);
trading-related net interest income for IB, CIO and Mortgage Bank-
ing; IB brokerage commissions, underwriting fees or other revenue;
revenue from syndicated lending facilities that the Firm intends to
distribute; and mortgage fees and related income for the Firm’s
mortgage pipeline and warehouse loans, MSRs, and all related
hedges. Daily firmwide market risk–related revenue excludes gains
and losses from DVA.
The following histogram illustrates the daily market risk–related gains and losses for IB, CIO and Mortgage Banking positions for 2010. The
chart shows that the Firm posted market risk–related gains on 248 out of 261 days in this period, with 12 days exceeding $210 million. The
inset graph looks at those days on which the Firm experienced losses and depicts the amount by which the 95% confidence-level VaR ex-
ceeded the actual loss on each of those days. During 2010, losses were sustained on 13 days, none of which exceeded the VaR measure.
<
(
30
)
90
> <
120
120
> <
150
150
> <
180
180
> <
210
210
> <
240
30
> <
60
(
30
)
> <
0
Daily IB and Other Market Risk-Related Gains and Losses
(95% Confidence-Level VaR)
Year ended December 31, 2010
Number of trading days
Average daily revenue: $87 million
0
10
20
30
40
50
60
70
80
$ in millions
2
4
6
8
<
0
20
> <
40
40
> <
60
60
> <
80
80
> <
100
>
120
$ in millions
Number of trading days
Daily IB and Other VaR less market risk-related losses
100
> <
120
0
> <
30
60
> <
90
0
>
240
The following table provides information about the gross sensitivity
of DVA to a one-basis-point increase in JPMorgan Chase’s credit
spreads. This sensitivity represents the impact from a one-basis-point
parallel shift in JPMorgan Chase’s entire credit curve. As credit
curves do not typically move in a parallel fashion, the sensitivity
multiplied by the change in spreads at a single maturity point may
not be representative of the actual revenue recognized.
Debit valuation adjustment sensitivity
1 Basis
p
oint
i
ncrease in
December 31,
(in millions)
JPMorgan Chase
’s credit s
pread
20
10
$
35
200
9
39