Goldman Sachs 2002 Annual Report Download - page 58

Managem ent’s D iscussion and A nalysis
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 55
We generally do not adjust the valuation assumptions
for cash trading instruments with little or no price trans-
parency unless there is substantial evidence supporting a
change in value (for example, comparable third-party
transactions) or if management determines that expected
realizable value is less than carrying value.
Derivative Contracts
Derivative contracts consist of exchange-traded and
OTC derivatives. The fair values of our exchange-
traded derivatives are generally determined from
quoted market prices. OTC derivatives are valued using
valuation models.
The following table sets forth our exchange-traded and OTC derivative assets and liabilities as of November 2002:
DERIVATIVE ASSETS AND LIABILITIES
(IN MILLIONS) ASSETS LIABILITIES
Exchange-traded derivatives $ 8,911 $ 8,630
OTC derivatives 33,294 30,291
Total $42,205 $38,921
The fair values of our derivative assets and liabilities include cash we have paid and received (for example, option pre-
miums) and will change significantly from period to period based on, among other factors, changes in our trading posi-
tions and market movements.
The following tables set forth the fair values of our OTC derivative assets and liabilities as of November 2002 by prod-
uct and by remaining contractual maturity:
OTC DERIVATIVES
(IN MILLIONS)
ASSETS
0–6 6–12 1–5 5–10 10 YEARS
PRODUCT MONTHS MONTHS YEARS YEARS OR GREATER TOTAL
Interest rate contracts $ 864 $ 536 $6,266 $4,983 $9,281 $21,930
Currency contracts 2,955 917 1,007 486 211 5,576
Commodity contracts 1,200 632 1,145 185 11 3,173
Equity contracts 1,386 492 673 63 1 2,615
Total $6,405 $2,577 $9,091 $5,717 $9,504 $33,294
LIABILITIES
0–6 6–12 1–5 5–10 10 YEARS
PRODUCT MONTHS MONTHS YEARS YEARS OR GREATER TOTAL
Interest rate contracts $1,084 $ 393 $ 6,870 $5,556 $2,291 $16,194
Currency contracts 3,134 751 1,478 935 603 6,901
Commodity contracts 1,432 836 977 62 2 3,309
Equity contracts 1,958 938 844 147 — 3,887
Total $7,608 $2,918 $10,169 $6,700 $2,896 $30,291
Price transparency for OTC derivative model inputs
varies depending on, among other factors, product
type, maturity and the complexity of the contract. In
general, there is significant price transparency for simple
interest rate contracts. Price transparency for currency
contracts varies by the underlying currencies, with the
currencies of the leading industrialized nations having
the most price transparency. Price transparency for
commodity contracts varies by type of underlying
commodity. Price transparency for equity contracts
varies by market, with the equity markets of the
leading industrialized nations having the most price
transparency. For more complex structures, price trans-
parency is inherently more limited because they often
combine one or more product types, requiring addi-
tional inputs such as correlations and volatilities.
The inputs used in our valuation models are based on
quoted market prices in active markets, if available, or, if
not, quoted market prices or recent transactions in less
active markets and/or prices of similar instruments.
Where such data is not readily available, inputs are
derived from other market data, taking into account
observable market movements that could reasonably be
expected to affect the derived input.
The net derivative contracts presented in the table above