Bank of America 2015 Annual Report Download - page 96

94 Bank of America 2015
types of revenue excluded for backtesting are fees, commissions,
reserves, net interest income and intraday trading revenues.
During 2015, there were no days in which there was a
backtesting excess for our total market-based portfolio VaR,
utilizing a one-day holding period.
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA
and DVA related revenue, represents the total amount earned from
trading positions, including market-based net interest income,
which are taken in a diverse range of financial instruments and
markets. Trading account assets and liabilities are reported at fair
value. For more information on fair value, see Note 20 – Fair Value
Measurements to the Consolidated Financial Statements. Trading-
related revenues can be volatile and are largely driven by general
market conditions and customer demand. Also, trading-related
revenues are dependent on the volume and type of transactions,
the level of risk assumed, and the volatility of price and rate
movements at any given time within the ever-changing market
environment. Significant daily revenues by business are monitored
and the primary drivers of these are reviewed.
The histogram below is a graphic depiction of trading volatility
and illustrates the daily level of trading-related revenue for 2015
and 2014. During 2015, positive trading-related revenue was
recorded for 98 percent of the trading days, of which 77 percent
were daily trading gains of over $25 million and the largest loss
was $22 million. This compares to 2014 where positive trading-
related revenue was recorded for 95 percent of the trading days,
of which 72 percent were daily trading gains of over $25 million
and the largest loss was $17 million.
Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can
exceed our estimates and it is dependent on a limited historical
window, we also stress test our portfolio using scenario analysis.
This analysis estimates the change in the 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
multi-week period 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 ad hoc scenarios are
developed to address specific potential market events or particular
vulnerabilities in the portfolio. 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. The macroeconomic 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 – Corporation-wide Stress Testing on page 50.
0
20
40
60
80
100
120
140
greater than -100 -100 to -75 -75 to -50 -50 to -25 -25 to 0 0 to 25 25 to 50 50 to 75 75 to 100 greater than 100
Number of Days
Revenue (dollars in millions)
Histogram of Daily Trading-related Revenue
Year Ended December 31, 2014 Year Ended December 31, 2015