JP Morgan Chase 2015 Annual Report Download - page 198

Notes to consolidated financial statements
188 JPMorgan Chase & Co./2015 Annual Report
Product/instrument Valuation methodology, inputs and assumptions
Classification in the valuation
hierarchy
Mortgage servicing rights
(“MSRs”)
See Mortgage servicing rights in Note 17. Level 3
Private equity direct investments Private equity direct investments Level 2 or 3
Fair value is estimated using all available information and considering
the range of potential inputs, including:
• Transaction prices
• Trading multiples of comparable public companies
• Operating performance of the underlying portfolio company
• Additional available inputs relevant to the investment
• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-
specific issues and lack of liquidity
Public investments held in the Private Equity portfolio Level 1 or 2
• Valued using observable market prices less adjustments for
relevant restrictions, where applicable
Fund investments (i.e., mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)
Net asset value (“NAV”)
• NAV is validated by sufficient level of observable activity (i.e.,
purchases and sales)
Level 1
• Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock up periods or withdrawal limitations) or where
observable activity is limited
Level 2 or 3(a)
Beneficial interests issued by
consolidated VIEs
Valued using observable market information, where available Level 2 or 3
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE
Long-term debt, not carried at
fair value
Valuations are based on discounted cash flows, which consider: Predominantly level 2
• Market rates for respective maturity
• The Firm’s own creditworthiness (DVA). See page 200 of
this Note.
Structured notes (included in
deposits, other borrowed funds
and long-term debt)
• Valuations are based on discounted cash flow analyses that
consider the embedded derivative and the terms and payment
structure of the note.
• The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that use observable or
unobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivative valuation. Adjustments are then made
to this base valuation to reflect the Firm’s own creditworthiness
(DVA) and to incorporate the impact of funding (FVA). See page
200 of this Note.
Level 2 or 3
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.