Morgan Stanley 2014 Annual Report Download - page 195

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) The ranges of significant unobservable inputs are represented in points, percentages, basis points, times or megawatt hours. Points are a
percentage of par; for example, 90 points would be 90% of par. A basis point equals 1/100th of 1%; for example, 753 basis points would
equal 7.53%.
(2) Amounts represent weighted averages except where simple averages and the median of the inputs are provided (see footnote 6 below).
Weighted averages are calculated by weighting each input by the fair value of the respective financial instruments except for
collateralized debt and loan obligations, principal investments, other debt, corporate bonds, long-term borrowings and derivative
instruments where some or all inputs are weighted by risk.
(3) This is the predominant valuation technique for this major asset or liability class.
(4) Investments in funds measured using an unadjusted NAV are excluded.
(5) Credit Valuation Adjustment (“CVA”) and FVA are included in the balance, but excluded from the Valuation Technique(s) and
Significant Unobservable Input(s) in the table above. CVA is deemed to be a Level 3 input when the underlying counterparty credit
curve is unobservable. FVA is deemed to be a Level 3 input in its entirety given the lack of observability of funding spreads in the
principal market.
(6) The data structure of the significant unobservable inputs used in valuing Interest rate contracts, Foreign exchange contracts and certain
Equity contracts may be in a multi-dimensional form, such as a curve or surface, with risk distributed across the structure. Therefore, a
simple average and median, together with the range of data inputs, may be more appropriate measurements than a single point weighted
average.
(7) Includes derivative contracts with multiple risks (i.e., hybrid products).
Sensitivity of the fair value to changes in the unobservable inputs:
(A) Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value
measurement.
(B) Significant changes in credit correlation may result in a significantly higher or lower fair value measurement. Increasing (decreasing)
correlation drives a redistribution of risk within the capital structure such that junior tranches become less (more) risky and senior
tranches become more (less) risky.
(C) Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value
measurement.
(D) There are no predictable relationships between the significant unobservable inputs.
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