NATIXIS_REGISTRATION_DOCUMENT_2017
5 FINANCIAL DATA
Consolidated financial statements and notes
If the selected valuation model is not recognized by current marketpractices,or if one of the inputs significantlyaffectingthe instrument’svaluationis not observable,the trading profit on the trade date cannot be recognized immediately in the income statement, but is taken to income on a straight-line basis over the life of the transaction or until the date the inputs become observable. Any losses incurred at the trade date are immediatelyrecognizedin income.
At December 31,2017, instrumentsfor which the recognitionof day-oneprofit/losshas been deferredincluded: multi-underlyingstructuredequity and index products; a syntheticloans; a optionson funds (multi-assetand mutualfunds); a structuredfixed-incomeproducts; a securitizationswaps. a
For these instruments,the followingtable providesthe main unobservableinputs as well as value ranges.
Main types of products comprising Level 3 within the instrument class
Data ranges unobservable among relevant level 3 products
Instrument class
Valuation techniques used
Main unobservable data
Credit derivative instruments
CDOs, Index tranche
Technique for estimating defaults given correlation effects and recovery modeling
Correlation curve specific to the portfolio underlying the CDO
5% -95% (a)
Private Finance Initiative CDS (other than CDS on securitization assets) Securitization swaps
Extrapolation from prices based on the recovery assumption
Recovery rate
60%-100%
Interest rate derivatives
Discounted cash flow expected based on the underlying portfolio’s early redemption assumption Valuation models for interest rate options Model representing several yield curve factors Bivariate normal model to understand the time value of Spread Lock options, and replication for CMS and TEC Forwards
Early redemption rate
2%-17%
Sticky CMS/Volatility Bond Callable Spread Options and Corridor Callable Spread Options Spread Lock Swap and Spread Lock Option
Mean reversion parameters Spread mean-reversion
[1%; 5%]
[0%; 30%]
Spread Lock curve TEC Forward Volatility and TEC/CMS correlation
Spread-Lock: [+2.28 bp, +29.94 bp] TEC vol. = [50 bp, 70 bp] TEC-CMS correl. = [70%, 95%] Interest rate vol.: 4.69% to 101.36%
Volatility cap/floor
Black & Scholes
Interest rate vol. for currencies absent from Totem or long maturities Forex vol. for currency pairs absent from Totem or long maturities
Currency derivative instruments
European barrier call option Asian call option, Vanilla digital call option, European call option TRS and repos indexed to a basket of general collateral equities
Skew Model, Local volatility model, Black & Scholes,
ATM vol.: 0.84% to 22.25%
Repos and general collateral TRS
Synthetic modeling of the underlying general collateral basket (with an estimated repo) and actuarial valuation for TRS or with a standard hybrid Equity/Fixed Income model for TRS autocall
Repo curve for general collateral baskets
General collateral repo: -0.84 to +0.5
Helvetix derivatives Strip of long-term
Black & Scholes model Gaussian copula
Forex/forex correlation
EUR/CHF correlation: 36.7%; 40.9% Long-term volatility: 9% -16% USD/CHF correlation: -69.10%; -78.80% Long-term volatility: 9% -15%
options, Strip of quanto options, Strip of digital options Options spread and digital options spread
Long-term USD/CHF & EUR/CHF volatility
236
Natixis Registration Document 2017
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