TD Bank 2014 Annual Report Download - page 153

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 151
techniques used to measure fair value, the significant inputs used in
the valuation technique that are considered unobservable, and a range
of values for those unobservable inputs. The range of values represents
the highest and lowest inputs used in calculating the fair value.
Valuation techniques and inputs used in the fair value
measurement of Level 3 assets and liabilities
The following table presents the Bank’s assets and liabilities recognized
at fair value and classified as Level 3, together with the valuation
Valuation Techniques and Inputs Used in the Fair Value Measurement of Level 3 Assets and Liabilities
(millions of Canadian dollars, except as noted) As at
October 31, 2014
Significant
Fair value Fair value Valuation unobservable Lower Upper
assets liabilities technique inputs (Level 3) range range Unit
Government and government-
related securities $ 56 $ n/a1 Market comparable Bond price equivalent 100 101 points
Other debt securities 414 n/a Market comparable Bond price equivalent – 132 points
Equity securities2 476 n/a Market comparable New issue price 100 100 %
Discounted cash flow Discount rate 1 23 %
EBITDA multiple Earnings multiple 5.3x 25x
Market comparable Price equivalent 98 98 %
Prepayment and
Retained interests 48 n/a Discounted cash flow liquidation rates – 10 %
Other financial assets designated
at fair value through profit or loss 5 n/a Market comparable Bond price equivalent 105 105 points
Derivatives
Interest rate contracts – 81 Swaption model Currency specific volatility 8 188 %
Foreign exchange contracts 16 14 Option model Currency specific volatility 6 18 %
Credit contracts – – Discounted cash flow Credit spread 5 103 bps3
Equity contracts 1,033 1,537 Option model Price correlation 14 85 %
Quanto correlation (40) 17 %
Dividend yield – 11 %
Equity volatility 11 80 %
Commodity contracts 2 6 Option model Quanto correlation (45) (25) %
Swaption correlation 34 46 %
Trading deposits n/a 1,631 Option model Price correlation – 98 %
Quanto correlation (45) 18 %
Dividend yield – 11 %
Equity volatility 10 68 %
Swaption model Currency specific volatility 8 188 %
Other financial liabilities designated
at fair value through profit or loss n/a 8 Option model Funding ratio 3 72 %
Obligations related to securities
sold short n/a 34 Market comparable New issue price 100 100 %
1
Not applicable.
2
As at October 31, 2014, common shares exclude the fair value of
Federal Reserve Stock and Federal Home Loan Bank stock of $972 million
(October 31, 2013 – $930 million) which are redeemable by the issuer at cost
which approximates fair value. These securities cannot be traded in the market
hence these securities have not been subjected to the sensitivity analysis.
3
Basis points.