JP Morgan Chase 2014 Annual Report Download - page 136

Management’s discussion and analysis
134 JPMorgan Chase & Co./2014 Annual Report
For additional information on Regulatory VaR and the other
components of market risk regulatory capital (e.g. VaR-
based measure, stressed VaR-based measure and the
respective backtesting) for the Firm, see JPMorgan Chase’s
Basel III Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31, 2014 2013 At December 31,
(in millions) Avg. Min Max Avg. Min Max 2014 2013
CIB trading VaR by risk type
Fixed income $ 34 $ 23 $ 45 $ 43 $ 23 $ 62 $ 34 $ 36
Foreign exchange 8 4 25 7 5 11 89
Equities 15 10 23 13 9 21 22 14
Commodities and other 8 5 14 14 11 18 613
Diversification benefit to CIB trading VaR (30) (a) NM (b) NM (b) (34) (a) NM (b) NM (b) (32) (a) (36) (a)
CIB trading VaR 35 24 49 43 21 66 38 36
Credit portfolio VaR 13 8 18 13 10 18 16 11
Diversification benefit to CIB VaR (8) (a) NM (b) NM (b) (9) (a) NM (b) NM (b) (9) (a) (5) (a)
CIB VaR 40 29 56 47 25 74 45 42
Mortgage Banking VaR 7 2 28 12 4 24 35
Treasury and CIO VaR (c) 4 3 6 6 3 14 44
Asset Management VaR 3 2 4 4 2 5 23
Diversification benefit to other VaR (4) (a) NM (b) NM (b) (8) (a) NM (b) NM (b) (3) (a) (5) (a)
Other VaR 10 5 27 14 6 28 67
Diversification benefit to CIB and other VaR (7) (a) NM (b) NM (b) (9) (a) NM (b) NM (b) (5) (a) (5) (a)
Total VaR $ 43 $ 30 $ 70 $ 52 $ 29 $ 87 $ 46 $ 44
(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful
to compute a portfolio-diversification effect.
(c) The Treasury and CIO VaR includes Treasury VaR as of the third quarter of 2013.
As presented in the table above, average Total VaR and
average CIB VaR decreased during 2014, compared with
2013. The decrease in Total VaR was primarily due to risk
reduction in CIB and Mortgage Banking as well as lower
volatility in the historical one-year look-back period during
2014 versus 2013.
Average CIB trading VaR decreased during 2014 primarily
due to lower VaR in Fixed Income (driven by unwinding of
risk and redemptions in the synthetic credit portfolio, and
lower volatility in the historical one-year look-back period)
and to reduced risk positions in commodities.
Average Mortgage Banking VaR decreased during 2014 as a
result of reduced exposures due to lower loan originations.
Average Treasury and CIO VaR decreased during 2014,
compared with 2013. The decrease predominantly reflected
the unwind and roll-off of certain marked to market
positions, and lower market volatility in the historical one-
year look-back period.
The Firm’s average Total VaR diversification benefit was $7
million or 16% of the sum for 2014, compared with $9
million or 17% of the sum for 2013. In general, over the
course of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates and
diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses recognized on
market-risk related revenue.
The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: profits and losses
on the Firm’s Risk Management positions, excluding fees,
commissions, certain valuation adjustments (e.g., liquidity
and DVA), net interest income, and gains and losses arising
from intraday trading.