VAR breakdown

Value-at-risk at the world's largest financial institutions rose modestly last year in a relatively benign market environment. But some parties are worried about the low number of reported VAR back-test exceptions. By Christopher Jeffery, with research by Xiao-Long Chen

Average value-at-risk at the world's leading financial institutions rose by just 1.2% last year in dollar terms to an average of $51.9 million using a one-day holding period at the 99% confidence level for our sample of 25 dealers (see table A). Year-end VAR levels, meanwhile, rose by an average 8.7% to $51.6 million (see table B).

The modest gains occurred in an environment of positive investor sentiment. Notably, equity markets performed strongly against a backdrop of strong corporate earnings. And, despite short-term rate hikes, long-term rates throughout most of the world ended the year at relatively low levels. In the currency markets, meanwhile, the dollar appreciated against other major currencies - it was up 14.3% against the euro, 15.2% against the Swiss franc, while sterling slipped 10.3% against the greenback - but this trend diminished towards the end of last year. However, the strength of the dollar does skew downwards the results of European institutions that do not report in dollars.

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