NBG » Topics » Value-at-Risk Methodology

This excerpt taken from the NBG 20-F filed Jul 15, 2009.

Value-at-Risk Methodology

        To manage market risk on its trading and investment portfolio, the Bank estimates market risk by applying a Value-at-Risk ("VaR") methodology. More specifically, the Bank has adopted the variance-covariance methodology, applying a 99% confidence interval and a one-day holding period. The VaR is calculated on a daily basis for the Bank's trading and available-for-sale positions, along with the VaR per risk type (interest rate, equity and foreign exchange risk). The model and the VaR calculations have been thoroughly examined and approved by the Central Bank of Greece, as well as by external consultants. The VaR model is based on certain theoretical assumptions, which under extreme market conditions might not capture the maximum loss the Bank or the Group will suffer.

        In 2008, the total VaR (99%, one-day) of the Bank's portfolio varied from €4.4 million to €19.7 million, with an average estimate of €9.8 million. The increase of total VaR in 2008 is mostly attributed to the increase of the interest rate VaR. The turbulence in the financial markets, which begun with the collapse of the US sub-prime mortgage market in the middle of 2007, continued in 2008, leading to higher interest rate volatility levels, especially of the EUR rates. Moreover, the sharp decline of interest rates during the fourth quarter of 2008 increased interest rate volatility further and resulted to the increase of the respective VaR figures.

 
  Total VaR   Interest
Rate VaR
  Equity VaR   FX VaR  
 
  2008   2007   2008   2007   2008   2007   2008   2007  
 
  (EUR in millions)
 

Average

    9.8     3.3     8.5     2.7     3.3     1.9     2.7     0.6  

Max

    19.7     6.6     15.3     5.3     7.7     3.5     15.2     2.0  

Min

    4.4     1.7     4.0     1.5     1.3     0.9     0.3     0.1  

Year End

    11.0     5.9     11.0     4.9     2.9     2.5     2.7     1.1  
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