JP Morgan Chase 2015 Annual Report Download - page 146

Management’s discussion and analysis
136 JPMorgan Chase & Co./2015 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, 2015 2014 At December 31,
(in millions) Avg. Min Max Avg. Min Max 2015 2014
CIB trading VaR by risk type
Fixed income $ 42 $ 31 $ 60 $ 34 $ 23 $ 45 $37 $34
Foreign exchange 9616 8425 68
Equities 18 11 26 15 10 23 21 22
Commodities and other 10 6 14 8514 10 6
Diversification benefit to CIB trading VaR (35) (a) NM (b) NM (b) (30) (a) NM (b) NM (b) (28) (a) (32) (a)
CIB trading VaR 44 27 68 35 24 49 46 38
Credit portfolio VaR 14 10 20 13 8 18 10 16
Diversification benefit to CIB VaR (9) (a) NM (b) NM (b) (8) (a) NM (b) NM (b) (10) (a) (9) (a)
CIB VaR 49 34 71 40 29 56 46 45
Mortgage Banking VaR 428 7228 43
Treasury and CIO VaR 437 43 6 54
Asset Management VaR 324 32 4 32
Diversification benefit to other VaR (3) (a) NM (b) NM (b) (4) (a) NM (b) NM (b) (4) (a) (3) (a)
Other VaR 8 5 12 10 5 27 86
Diversification benefit to CIB and other VaR (10) (a) NM (b) NM (b) (7) (a) NM (b) NM (b) (9) (a) (5) (a)
Total VaR $ 47 $ 34 $ 67 $ 43 $ 30 $ 70 $45 $46
(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.
As presented in the table above, average Total VaR and
average CIB VaR increased during 2015 when compared
with 2014. The increase in Total VaR was primarily due to
higher volatility in the CIB in the historical one-year look-
back period during 2015 versus 2014.
Average CIB trading VaR increased during 2015 primarily
due to higher VaR in the Fixed Income and Equities risk
factors reflecting a combination of higher market volatility
and increased exposure.
Average Mortgage Banking VaR decreased from the prior
year. Average Mortgage Banking VaR was elevated late in
the second quarter of 2014 due to a change in the MSR
hedge position made in advance of an anticipated update to
certain MSR model assumptions; when such updates were
implemented, the MSR VaR decreased to levels more
consistent with prior periods.
The Firm continues to enhance the VaR model calculations
and time series inputs related to certain asset-backed
products.
The Firm’s average Total VaR diversification benefit was $10
million or 21% of the sum for 2015, compared with $7
million or 16% of the sum for 2014. 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: gains and losses on
the positions included in the Firm’s Risk Management VaR,
excluding fees, commissions, certain valuation adjustments
(e.g., liquidity and DVA), net interest income, and gains and
losses arising from intraday trading.