Bank of America 2014 Annual Report Download - page 251

Bank of America 2014 249
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of
Level 3 financial assets and liabilities at December 31, 2014 and 2013.
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
(Dollars in millions) Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted
Average
Loans and Securities (1)
Instruments backed by residential real estate assets $ 2,030
Discounted cash flow,
Market comparables
Yield 0% to 25% 6%
Trading account assets – Mortgage trading loans and ABS 483 Prepayment speed 0% to 35% CPR 14%
Loans and leases 1,374 Default rate 2% to 15% CDR 7%
Loans held-for-sale 173 Loss severity 26% to 100% 34%
Commercial loans, debt securities and other $ 7,203
Discounted cash flow,
Market comparables
Yield 0% to 40% 9%
Trading account assets – Corporate securities, trading loans and other 3,224 Enterprise value/EBITDA multiple 0x to 30x 6x
Trading account assets – Non-U.S. sovereign debt 574 Prepayment speed 1% to 30% 12%
Trading account assets – Mortgage trading loans and ABS 1,580 Default rate 1% to 5% 4%
AFS debt securities – Other taxable securities 1,216 Loss severity 25% to 40% 38%
Loans and leases 609 Duration 0 years to 5 years 3 years
Price $0 to $107 $76
Auction rate securities $ 1,096
Discounted cash flow,
Market comparables
Price $60 to $100 $95
Trading account assets – Corporate securities, trading loans and other 46
AFS debt securities – Other taxable securities 451
AFS debt securities – Tax-exempt securities 599
Structured liabilities
Long-term debt $ (2,362)
Industry standard
derivative pricing (2, 3)
Equity correlation 20% to 98% 65%
Long-dated equity volatilities 6% to 69% 24%
Long-dated volatilities (IR) 0% to 2% 1%
Net derivative assets
Credit derivatives $ 22
Discounted cash flow,
Stochastic recovery
correlation model
Yield 0% to 25% 14%
Upfront points 0 points to 100 points 65 points
Spread to index 25 bps to 450 bps 119 bps
Credit correlation 24% to 99% 51%
Prepayment speed 3% to 20% CPR 11%
Default rate 4% CDR n/a
Loss severity 35% n/a
Equity derivatives $ (1,560) Industry standard
derivative pricing (2)
Equity correlation 20% to 98% 65%
Long-dated equity volatilities 6% to 69% 24%
Commodity derivatives $ 141 Discounted cash flow,
Industry standard
derivative pricing (2)
Natural gas forward price $2/MMBtu to $7/MMBtu $5/MMBtu
Correlation 82% to 93% 90%
Volatilities 16% to 98% 35%
Interest rate derivatives $ 477
Industry standard
derivative pricing (3)
Correlation (IR/IR) 11% to 99% 55%
Correlation (FX/IR) -48% to 40% -5%
Long-dated inflation rates 0% to 3% 1%
Long-dated inflation volatilities 0% to 2% 1%
Total net derivative assets $ (920)
(1) The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 243: Trading
account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $574 million, Trading account assets – Mortgage trading loans
and ABS of $2.1 billion, AFS debt securities – Other taxable securities of $1.7 billion, AFS debt securities – Tax-exempt securities of $599 million, Loans and leases of $2.0 billion and LHFS of $173
million.
(2) Includes models such as Monte Carlo simulation and Black-Scholes.
(3) Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable