Morgan Stanley 2014 Annual Report Download - page 194

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balance at
December 31,
2014
(dollars in
millions)
Valuation
Technique(s)
Significant Unobservable Input(s) /
Sensitivity of the Fair Value to Changes
in the Unobservable Inputs Range(1) Averages(2)
Foreign exchange contracts(7) 151 Option model Interest rate quanto
correlation / (A)(D) -9 to 35% 6% / -6%(6)
Interest rate—Credit spread
correlation / (A)(D) -54 to -2% -17% / -11%(6)
Interest rate curve
correlation / (A)(D) 44 to 87% 73% / 80%(6)
Interest rate—Foreign exchange
correlation / (A)(D) 28 to 62% 44% / 42%(6)
Interest rate curve / (A)(D) 0 to 2% 1% / 1%(6)
Equity contracts(7) (1,380) Option model At the money volatility / (A)(D) 14 to 51% 29%
Volatility skew / (A)(D) -2 to 0% -1%
Equity—Equity correlation / (C)(D) 40 to 99% 72%
Equity—Foreign exchange
correlation / (C)(D) -50 to 10% -16%
Equity—Interest rate
correlation / (C)(D) -18 to 81% 26% / 11%(6)
Commodity contracts 1,146 Option model Forward power price / (C)(D) $5 to $106 per $ 38 per
Megawatt hour Megawatt hour
Commodity volatility / (A)(D) 11 to 90% 19%
Cross commodity correlation / (C)(D) 33 to 100% 93%
Investments(4):
Principal investments 835 Discounted cash flow Implied weighted average cost of
capital / (C)(D) 11% 11%
Exit multiple / (A)(D) 10 times 10 times
Discounted cash flow Equity discount rate / (C) 25% 25%
Market approach(3) EBITDA multiple / (A)(D) 4 to 14 times 10 times
Price / Earnings ratio / (A)(D) 23 times 23 times
Forward capacity price / (A)(D) $5 to $7 $7
Comparable pricing Comparable equity price / (A) 64 to 100% 95%
Other 323 Discounted cash flow Implied weighted average cost of
capital / (C)(D) 10 to 13% 11%
Exit multiple / (A)(D) 6 to 9 times 9 times
Market approach EBITDA multiple / (A)(D) 9 to 13 times 10 times
Comparable pricing(3) Comparable equity price / (A) 100% 100%
Liabilities
Corporate and other debt:
Corporate bonds $ 78 Option model Volatility skew / (C)(D) -1% -1%
At the money volatility / (C)(D) 10% 10%
Securities sold under agreements
to repurchase 153 Discounted cash flow Funding spread / (A) 75 to 91 basis points 86 basis points
Other secured financings 149 Comparable pricing Comparable bond price / (A) 99 to 101 points 100 points
Discounted cash
flow(3) Funding spread / (A) 82 to 98 basis points 95 basis points
Long-term borrowings 1,934 Option model(3) At the money volatility / (C)(D) 18 to 32% 27%
Volatility skew / (A)(D) -1 to 0% 0%
Equity—Equity correlation / (A)(D) 40 to 90% 68%
Equity—Foreign exchange
correlation / (C)(D) -73 to 30% -32%
Option model Equity alpha / (A) 0 to 94% 67%
Correlation model Credit correlation / (B) 48 to 65% 51%
EBITDA—Earnings before interest, taxes, depreciation and amortization
190