ING Direct 2013 Annual Report Download - page 203

Notes to the consolidated annual accounts of ING Group continued
The table below provides a summary of the valuation techniques, key unobservable inputs and the lower and upper range of such
unobservable inputs, by type of level 3 asset/liability.
Valuation techniques and range of unobservable inputs (Level 3) - ING Bank
2013 Assets Liabilities Valuation techniques
Significant
unobservable inputs
Lower
range
Upper
range
At fair value through profit and loss
Debt securities 341 26 Price based Price (%) 0% 150%
Net asset value Price (%) 118% 118%
Loan pricing model Credit spread (bps) 696 696
Loans and advances 164 5Price based Price (%) 1% 100%
Net asset value Price (%) 32% 38%
Present value techniques Credit spread (bps) 106 2,101
Loan pricing model Credit spread (bps) 696 696
Structured notes 343 Price based Price (%) 65% 110%
Net asset value Price (%) 118% 118%
Option pricing model Equity volatility (%) 17% 74%
Equity/Equity correlation – 0.1 0.9
Equity/FX correlation –0.6 0.9
Dividend yield (%) 0% 7%
Derivatives
– Rates 303 387 Option pricing model Interest rate volatility (%) 11% 69%
Interest rate correlation 0.9 0.9
Inflation rate (%) 0% 4%
Present value techniques Reset spread 3% 3%
Prepayment rate 5% 5%
– FX 462 384 Present value techniques Inflation rate (%) –1% 3%
– Credit 54 60 Present value techniques Credit spread (bps) 11,372
Implied correlation 0.4 1
– Equity 102 240 Option pricing model Equity volatility (%) 5% 94%
Equity/Equity correlation – 0.1 1
Equity/FX correlation –0.9 0.5
Dividend yield (%) 0% 9%
– Other 1 3 Option pricing model Commodity volatility 6% 28%
Com/Com correlation – 0.1 0.9
Com/FX correlation –0.8 –0.2
Available for sale
– Debt 506 n/a
– Equity 509 n/a
– Asset backed securities 149 n/a
Other 8
2,601 1,448
Equity securities
Level 3 equity securities mainly include corporate investments, fund investments, real estate positions and other equity securities which are
not traded in active markets. In the absence of an active market, fair values are estimated on the basis of the analysis of fund managers
reports, company’s financial position, future prospects and other factors, considering valuations of similar positions or by the reference to
acquisition cost of the position. Given the bespoke nature of the analysis in respect to most significant positions, it is not practical to quote
a range of key unobservable inputs.
Credit spreads
Credit spread is the premium above a benchmark interest rate, typically LIBOR or relevant Treasury instrument, required by the market
participant to accept a lower credit quality. Higher credit spreads indicate lower credit quality and a lower value of an asset.
Volatility
Volatility is a measure for variation of the price of a financial instrument or other valuation input over time. Volatility is one of the key
inputs in option pricing models. Typically, the higher the volatility, the higher value of the option. Volatility varies by the underlying
reference (equity, commodity, foreign currency and interest rates), by strike and maturity of the option.
201ING Group Annual Report 2013
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information