Market risk arises from changes in interest rates, foreign exchange rates and equity prices, as well as in their correlations and volatility levels. For structural interest rate risk, the primary focus is achieving a desired overall interest rate profile, which may change over time, based on management's longer-term view of interest rates and economic conditions.

Risk measurement

• DBS has adopted a Daily Earnings at Risk (DEaR) methodology that estimates the Group's trading market risk with a given level of confidence, over a one-day horizon. DEaR takes into account all pertinent risk factors and covers all financial instruments which expose the Group to market risk, across nearly all geographies.
• On a daily basis, DBS estimates DEaR for each trading business unit, as well as for Group-wide trading market risk. These daily reports estimate DEaR for individual activity and risk type eg. foreign exchange, interest rate or equity.
• The DEaR metric is calculated using: 
  a. Variance-covariance method
  b. Historical simulation method 
  c. Structured Monte Carlo method for option products

Organisation Structure
Y2K DBS Initiative
Best Practices Guide
Managing Specific Risks

Market Risk
Credit Risk
Liquidity Risk
Operational Risk

Although DEaR provides valuable insights, no single measure can capture all aspects of market risk. As a result, we supplement DEaR with daily sensitivity analyses and periodic stress tests.

Controls 

• A set of limits ensures that risk-takers do not exceed the aggregate risk and concentration parameters set by senior management. Limits are set for business units and risk sources. 
• Independent mark-to-market valuation, reconciliation of positions and tracking of stoplosses for trading positions on a timely basis. 
• Backtesting of risk models to determine whether their predictive ability falls within statistically acceptable bounds. 
• Independent validation of valuation models, especially for option products. 
• A process for assessing the risk of new products.