Valuation

The effects are distributed in line with the instructions stated under "Conditional bonus" in the traffic light model. The effect of the measured result is similar to including the conditional bonus in the capital base.

The traffic light model is a tool for identifying companies that require a more detailed review. It is based on simplified assumptions. All risks and relationships are not gauged in the traffic light model. The fact that a company does not receive a red light does not necessarily mean that the company is not subject to excessive risk exposure, just as a red light does not necessarily mean that the company is carrying excessive risk exposure. Ultimately, FI is interested in the actual risk associated in companies.

The measurement of credit risk is a simplification in which all risk is aggregated and illustrated in the form of the duration-weighted spread. In the case of low spread levels, the problem arises of measuring volatility as a percentage because of the fact that when the spread approaches zero the percentage change in the spread becomes almost infinite. Consequently, a need arises to use a change in the spread in the basis points when the spread is low. If you study, for example, how the 10-year swap spread has changed, you end up on the level of 25 basis points and it does not seem particularly unlikely is a highly stressed situation, for instance, in the light of developments in 1998. The level is also supported by US data on how the spread on Aaa-rated long bonds has changed historically. Shorter maturities show a somewhat lower volatility in basis points.

In the traffic light model, credit risk is measured as a price risk for interest-bearing assets issued by others than the State. Assets with a weighted risk of zero in the current basic regulations can have a price risk in relation to a risk-free alternative. The traffic light system is solely for FI to identify companies for closer inspection and, accordingly, should not be compared with solvency or capital coverage regulations.

Yes. That is correct. You cannot eliminate the Swedish interest risk with Euro interest.

The traffic light model measures the change that is most disadvantageous for the company. Accordingly, the company shall measure both the rise and fall of interest. The company only needs to report the result of the most disadvantageous change. Net interest risk refers to the combined effect of the change in interest rate from the asset and liability sides of the balance sheet.

Yes, when these are not currency hedged.

Yes.

Yes.

No.

Since the calculation of credit risk is based on the average credit spread in the portfolio, the risk level of the assets is reflected. However, it make is no difference if the spread takes into account the various collateral arrangements or is due to the issuer’s own financial strength.