Barclays 2011 Annual Report Download - page 239

20 Fair value of financial instruments continued
Other credit products
The sensitivity of valuations of the illiquid CDS portfolio is determined by applying a shift to each underlying reference asset. The shift is based upon the
average bid offer spreads observed in the market for similar CDS.
Bespoke Collateralised Synthetic Obligation (CSO) sensitivity is calculated using correlation levels derived from the range of contributors to a consensus
bespoke service.
Derivative exposure to monoline insurers
Sensitivity is measured by stressing inputs to the counterparty valuation adjustment including our expected exposures and the probability of default of
the monoline derivative counterparty. The modelled expected exposures are stressed by shifting the recovery rate assumptions on the underlying
protected assets. The probability of default of the monoline derivative counterparty is stressed by shifting the internal default curve, which is generated
through the analysis performed by credit risk management.
Non-asset backed debt instruments
The sensitivity for convertible bonds is determined by applying a shift to each underlying position based upon the bid offer spreads observed in the
market for similar bonds.
The sensitivity for corporate bonds portfolio is determined by applying a shift to each underlying position driven by average bid offer spreads observed
in the market for similar bonds.
Equity products
Sensitivity is estimated based on the dispersion of consensus data services either directly or through proxies.
Private equity
The relevant valuation models are each sensitive to a number of key assumptions, such as projected future earnings, comparator multiples,
marketability discounts and discount rates. Valuation sensitivity is estimated by flexing such assumptions to reasonable alternative levels and
determining the impact on the resulting valuation.
Funds and fund-linked products
Sensitivity is calculated on an individual fund basis using a loss based scenario approach which factors in the underlying assets of the specific fund and
assumed recovery rates.
Foreign exchange products
Sensitivity relating to unobservable valuation inputs is based on the dispersion of consensus data services.
Interest rate products
Sensitivity relating to the valuation of the products is mainly driven from the dispersion of the consensus data.
Commodity products
Sensitivity is determined primarily by measuring historical variability over two years. The estimate is calculated using data for short dated parameter
curves to generate best and worst case scenarios. Where historical data is unavailable or uncertainty is due to volumetric risk, sensitivity is measured by
applying appropriate stress scenarios or using proxy bid-offer spread levels.
Other
The sensitivity for fixed rate loans is calculated by applying a 25% shift in borrower credit spreads.
No stress has been applied to the receivables relating to the Lehman acquisition (refer to Note 18). Due to the uncertainty inherent in legal proceedings,
it is not possible to identify reasonable upside and downside stresses on a basis comparable with the other assets analysed.
The sensitivity for credit valuation adjustments is calculated by assessing the impact on the counterparty credit spreads of stressing their credit ratings
by two ratings notches.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 237
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