Derivatives Exposure

This will be somewhat of a litmus test for idiocy of biz as a whole. I am honestly really, really excited as to if someone is able to answer your question. I bet not.

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>>1564165

Op here. I'm excited as well. It's even crazier if you go into differences between US and IFRS accounting.

Deutsche Bank listed for their derivates just a positive and a negative market value, and a net market value of roughly 20 billion, with notional amount if 42 trillion.

But again, that number really doesn't tell me anything. You can see in their balance sheet that each pair of positions roughly cancels itself out (credit risk derivatives, commodities derivatives, equity derivatives etc.). Some are marked by brackets as a loss I think, but since all these positions have yet to mature, they are unrealized gains/losses?

And by that logic, DB should ,theoretically, have almost 20 billion euros in unrealized gains?

>>1564165
How helpful was that comment. If your going to post atleast contribute a little of what you now. I personally know fuck all about this stuff

>>1564296
i'm not nearly firm enough in GAAP to answer JP Morgan, but IFRS is more my speed. fair value according to IFRS 13 is more or less equivalent to market value.

so DB's best guess is if they had to sell off all of their derivatives on 2015-12-31 they would have ended up with a profit of ~18.3 billion. it's pure fiction of course, first and foremost because selling everything off would crash the markets, but it's a helpful guide.

the fair value has a few caveats. firstly it would already contain default risk priced in. nobody's paying full price for a swap where your counterpart is near default. secondly, future profits would have to be discounted. nobody's paying 100 bucks right now for a guaranteed gain of 100 bucks in 5 years. so if (ceteris paribus!) they wait until maturity they nominally stand to gain more than 18.3 billion.

of course much of this is highly speculative accounting wank. they're guessing what someone would pay for their shit in an ordinary transaction on the free market (or what they would have to pay to get rid of it). so until they actually try and sell it it's doubtful at best. furthermore most derivatives are bets on uncertain events, so at lot can happen until maturity.

>>1564387

thank you, my man. One more question: How many of these contracts do you consider to be just bets and not hedging?

A tremendous amount of those contracts (15 trillion euros) refers to interest rates. So, I guess, they just try to hedge out the risks of interest rate changes? And furthermore, do they do this to secure the value of customer assets?

>>1564404
i don't work at DB so i wouldn't know. do they mention it in their report? sounds like something that would interest stakeholders. (then again, i wouldn't put money on DB knowing the purpose of every cent among 41 trillion in derivatives)

first off, does it even matter what their reasoning behind making the bet is? it's still the same bet. also, at some point you're starting to hedge derivatives with more derivatives. and even if you don't do it deliberately you can easily end up with two derivatives which cancel each other out.

i'm purely guessing at this point, but to answer part of your question: probably quite a lot are purely speculative. every derivative out there needs two partners. so if a lot of the smaller banks mostly hedge - who's going to be their counter part? big banks like DB who are willing to shoulder the risk and the exposure. so my guess (!) is that the hedging and securing takes place on the other end of those derivatives.
and yeah, i suspect most of those 33 trillions to be inter-bank otc interst rate swaps (15 trillion is just those with maturity less than a year).

>>1564442

the part with the hedging of smaller firms and banks is really insightful. I mean, given the loads of turbos and knockouts DB has emitted, it makes sense that for example the equity and commodity derivates are traded way more on exchanges than the interest rate related derivatives. I guess that's where DB is the counterpart to small retail customers.

Anyway, thanks for your answers. Really made me understand this sheet better.