Market risk is incurred primarily through UBS’s trading activities, which are centered in the Investment Bank Business Group.
Market risk for the Investment Bank, as measured by the average 10-day 99% confidence level Value at Risk (VaR) for the quarter, increased from CHF 345.1 million to CHF 364.4 million, but remained within a similar range to the previous two quarters. The general increase in VaR in 2003, compared with levels in 2002, reflects the growth of our fixed income business, particularly in the US, which has brought increased trading opportunities and a commensurate increase in risk exposure. Equity markets have continued the steady recovery that began in the second quarter 2003, which, along with UBS’s involvement in a number of large transactions, resulted in generally higher VaR for equities risk than in the previous quarter. Higher VaR does not signal any fundamental change in our approach to risk – where opportunities arise we are prepared to take risks and manage them prudently within defined parameters.
The quality of the VaR model is continuously monitored by backtesting – comparing actual revenues arising from closing positions (i. e. excluding intraday revenues, fees and commissions) with the 1-day VaR calculated on these positions. The graph on the right shows these daily revenues and the corresponding 1-day VaR over the last 12 months. The 10-day VaR, which is the basis of the limits and exposures in the tables above, is also shown in this graph for information. Revenues over this period were within the range predicted by the VaR model.
UBS also routinely assesses potential stress loss against a standard set of forward-looking scenarios. Stress events modeled in our standard scenarios include crises in equity, corporate bond and emerging markets, and severe currency and interest rate movements. These scenarios are kept under constant review and fine-tuned as necessary. We also monitor our positions against more specific scenarios that target individual sectors or are based on current concerns. Stress loss exposure in the quarter followed a similar pattern to VaR – slightly higher than the previous quarter on average but ending the quarter lower than at the end of the previous quarter, and well within limits.
Home
Top
