Bank of America 2013 Annual Report Download - page 110

108 Bank of America 2013
The histogram below is a graphic depiction of trading volatility
and illustrates the daily level of trading-related revenue for 2013
and 2012. During 2013, positive trading-related revenue was
recorded for 96 percent, or 241 of the 251 trading days, of which
74 percent (186 days) were daily trading gains of over $25 million
and the largest loss was $54 million. This compares to 2012
where positive trading-related revenue was recorded for 98
percent, or 243 of the 249 trading days, of which 80 percent (199
days) were daily trading gains of over $25 million and the largest
loss was $50 million.
Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can
exceed our estimates and are dependent on a limited historical
window, we also stress test our portfolio using scenario analysis.
This analysis estimates the change in value of our trading portfolio
that may result from abnormal market movements.
A set of scenarios, categorized as either historical or
hypothetical, are computed daily for the overall trading portfolio
and individual businesses. These scenarios include shocks to
underlying market risk factors that may be well beyond the shocks
found in the historical data used to calculate VaR. Historical
scenarios simulate the impact of the market moves that occurred
during a period of extended historical market stress. Generally, a
10-business day window or longer representing the most severe
point during a crisis is selected for each historical scenario.
Hypothetical scenarios provide simulations of the estimated
portfolio impact from potential future market stress events.
Scenarios are reviewed and updated in response to changing
positions and new economic or political information. In addition,
new or adhoc scenarios are developed to address specific
potential market events. For example, a stress test was conducted
to estimate the impact of a significant increase in global interest
rates and the corresponding impact across other asset classes.
The stress tests are reviewed on a regular basis and the results
are presented to senior management.
Stress testing for the trading portfolio is integrated with
enterprise-wide stress testing and incorporated into the limits
framework. A process is in place to promote consistency between
the scenarios used for the trading portfolio and those used for
enterprise-wide stress testing. The scenarios used for enterprise-
wide stress testing purposes differ from the typical trading portfolio
scenarios in that they have a longer time horizon and the results
are forecasted over multiple periods for use in consolidated capital
and liquidity planning. For additional information, see Managing
Risk – Enterprise-wide Stress Testing on page 59.