Morgan Stanley 2009 Annual Report Download - page 101
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As shown in Table 1, the Company’s average 95%/one-day Trading VaR for the one month ended December 31,
2008 was $113 million. The histogram below presents the distribution of the Company’s daily 95%/one-day
Trading VaR for the one month ended December 31, 2008. The most frequently occurring value was between
$115 million and $118 million, while for approximately 70% of trading days during the month VaR ranged
between $109 million and $118 million.
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100 to 103
103 to 106
106 to 109
109 to 112
112 to 115
115 to 118
118 to 121
121 to 124
Number of Days
One Month Ended December 31, 2008
Daily 95% / One-Day Trading VaR
(dollars in millions)
One method of evaluating the reasonableness of the Company’s VaR model as a measure of the Company’s
potential volatility of net revenue is to compare the VaR with actual trading revenue. Assuming no intra-day
trading, for a 95%/one-day VaR, the expected number of times that trading losses should exceed VaR during the
year is 13, and, in general, if trading losses were to exceed VaR more than 21 times in a year, the accuracy of the
VaR model could be questioned. Accordingly, the Company evaluates the reasonableness of its VaR model by
comparing the potential declines in portfolio values generated by the model with actual trading results. For days
where losses exceed the 95% or 99% VaR statistic, the Company examines the drivers of trading losses to
evaluate the VaR model’s accuracy relative to realized trading results.
The Company incurred daily trading losses in excess of the 95%/one-day Trading VaR on one day during 2009
and three days during the month ended December 31, 2008. The Company bases its VaR calculations on the long
term (or unconditional) distribution with four years of observations and therefore evaluates its risk from an
historical perspective. The Company is evaluating enhancements to the VaR model to make it more responsive to
more recent market conditions, while maintaining a longer-term perspective.
97