Société Générale / Risk Report - Pillar III

8 MARKET RISK

MARKET RISK MAIN MEASURES

Stressed VaR (SVaR) At end 2011, Societe Generale was authorised by the French Prudential and Resolution Supervisory Authority ( Autorité de Contrôle Prudentiel et de Résolution – ACPR) to supplement its internal models with the CRD3 requirements, in particular Stressed VaR, for the same scope as VaR. The calculation method used for the 99% one-day SVaR is the same as as the one for the VaR. It consists in carrying out a historical simulation with one-day shocks and a 99% confidence interval. Contrary to VaR, which uses 260 scenarios for one-day fluctuations over a rolling one-year period, SVaR uses a fixed one-year historical window corresponding to a period of significant financial tension. The method for determining the fixed historical stress window, which has been approved by the supervisor (1) , is based on a review of the historic shocks on the risk factors representative of the Societe Generale portfolio (related to equity, fixed income, foreign exchange, credit and commodity risks): historical shocks are aggregated to determine the period of highest stress for the entire portfolio. Each risk factor is assigned a weighting to account for the weight of each risk factor within its asset class and the weight of the asset class in the Group’s VaR. The historical window used is reviewed annually. In 2019, this window was “September 2008-September 2009”.

The ten-day SVaR used for the computation of the regulatory capital is obtained, as for VaR, by multiplying the one-day SVaR by the square root of ten. The continuous backtesting performed on VaR model cannot be replicated to the SVaR model as, by definition, it is not sensitive to the current market conditions. However, as the VaR and the SVaR models rely on the same approach, they have the same advantages and limitations. The relevance of the SVaR is regularly monitored and reviewed by the Risk Department in charge of the validation of internal models, as second line of defense. The independent review process ends with (i) review and approval committees and (ii) an audit report detailing the scope of the review, the tests performed and their outcomes, the recommendations and the conclusion of the review. The model control mechanism gives rise to recurrent reporting to the appropriate authorities. The SVaR remained stable on average in 2019 (EUR 38 million vs. EUR 40 million in 2018). The main contributing factors remain the same as in 2018, namely, the Fixed Income activities, the volatility being due to equity derivatives.

TABLE 90: REGULATORY TEN-DAY 99% SVAR AND ONE-DAY 99% SVAR

31.12.2019

31.12.2018

Stressed VaR (10 days, 99%) (1)

Stressed VaR (1 day, 99%) (1)

Stressed VaR (10 days, 99%) (1)

Stressed VaR (1 day, 99%) (1)

(In EURm)

Period start

108

34

65

21

213

67

395

125

Maximum value

Average value

119

38

128

40

Minimum value

49

15 35

50

16 49

Period end

112

156

Over the scope for which capital requirements are assessed by internal model. (1)

A complementary method has been submitted to the supervisor for approval in Q2 2018: the purpose is to ensure the relevance of the period obtained following the method (1) based on the weighting of historical shocks by computing an approached VaR on the same selection of risk factors representative of Societe Generale portfolio.

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