Bank of America 2014 Annual Report Download - page 252

250 Bank of America 2014
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2013
(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 $ 3,443
Discounted cash flow,
Market comparables
Yield 2% to 25% 6%
Trading account assets – Mortgage trading loans and ABS 363 Prepayment speed 0% to 35% CPR 9%
Loans and leases 2,151 Default rate 1% to 20% CDR 6%
Loans held-for-sale 929 Loss severity 21% to 80% 35%
Commercial loans, debt securities and other $ 12,135
Discounted cash flow,
Market comparables
Yield 0% to 45% 5%
Trading account assets – Corporate securities, trading loans and other 3,462 Enterprise value/EBITDA multiple 0x to 24x 7x
Trading account assets – Non-U.S. sovereign debt 468 Prepayment speed 5% to 40% 19%
Trading account assets – Mortgage trading loans and ABS 4,268 Default rate 1% to 5% 4%
AFS debt securities – Other taxable securities 3,031 Loss severity 25% to 42% 36%
Loans and leases 906 Duration 1 year to 5 years 4 years
Auction rate securities $ 1,719
Discounted cash flow,
Market comparables
Projected tender price/
Refinancing level
60% to 100% 96%
Trading account assets – Corporate securities, trading loans and other 97
AFS debt securities – Other taxable securities 816
AFS debt securities – Tax-exempt securities 806
Structured liabilities
Long-term debt $ (1,990)
Industry standard
derivative pricing (2, 3)
Equity correlation 18% to 98% 70%
Long-dated equity volatilities 4% to 63% 27%
Long-dated volatilities (IR) 0% to 2% 1%
Net derivative assets
Credit derivatives $ 808
Discounted cash flow,
Stochastic recovery
correlation model
Yield 3% to 25% 14%
Upfront points 0 points to 100 points 63 points
Spread to index -1,407 bps to 1,741 bps 91 bps
Credit correlation 14% to 99% 47%
Prepayment speed 3% to 40% CPR 13%
Default rate 1% to 5% CDR 3%
Loss severity 20% to 42% 35%
Equity derivatives $ (1,596) Industry standard
derivative pricing (2)
Equity correlation 18% to 98% 70%
Long-dated equity volatilities 4% to 63% 27%
Commodity derivatives $ 6 Discounted cash flow,
Industry standard
derivative pricing (2)
Natural gas forward price $3/MMBtu to $11/MMBtu $6/MMBtu
Correlation 47% to 89% 81%
Volatilities 9% to 109% 30%
Interest rate derivatives $ 558
Industry standard
derivative pricing (3)
Correlation (IR/IR) 24% to 99% 60%
Correlation (FX/IR) -30% to 40% -4%
Long-dated inflation rates 0% to 3% 2%
Long-dated inflation volatilities 0% to 2% 1%
Total net derivative assets $ (224)
(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 244: Trading
account assets – Corporate securities, trading loans and other of $3.6 billion, Trading account assets – Non-U.S. sovereign debt of $468 million, Trading account assets – Mortgage trading loans
and ABS of $4.6 billion, AFS debt securities – Other taxable securities of $3.8 billion, AFS debt securities – Tax-exempt securities of $806 million, Loans and leases of $3.1 billion and LHFS of $929
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