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## Risk Management Report continued 

## Value-at-Risk 

VaR provides a statistically based summary of overall market risk in Macquarie. The magnitude of VaR reflects changes in positions as well as changes in market volatility and correlations and enhancements to the model. The integrity of the VaR model is tested regularly against daily profit and loss. 

The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths for approximately 2,800 benchmarks, using volatilities and correlations based on three years of historical data. Emphasis is placed on more recent market movements to more accurately reflect current conditions. Each benchmark represents an asset at a specific maturity, for example one year crude oil futures or spot gold. The benchmarks provide a high level of granularity in assessing risk, covering a range of points on yield curves and forward price curves, and distinguishing between similar but distinct assets; for example crude oil as opposed to heating oil, or gas traded in different locations. Exposures to individual equities within a national market are captured by specific risk modelling incorporated directly into the VaR model. 

Macquarie’s market risk, as measured by VaR, peaked in July 2013 driven by higher benchmark volatilities (reflecting general market volatility in June) and larger commodity exposures. VaR subsequently reduced to levels in line with previous years. VaR remains modest in comparison to capital and earnings and continues to represent less than 0.2 per cent of total equity. The graph below shows the daily VaR and the six month average VaR as a percentage of total equity. 

<img src='content_image/197873.jpg'>

## VaR figures for year ended 31 March 2014 (1-day, 99% confidence level) 

<img src='content_image/197871.jpg'>

