Has the framework Citigroup uses for measuring Price Risk changed? • What additional information about their risk management approach have they disclosed in 2014 over that of 2005?

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Like most large banks, Citigroup has traditionally derived a significant portion of it revenues and net income from its trading activities. These activities include positions taken to facilitate customer orders, as well as purely proprietary trading activities, i.e., trading for its account with its own money. Market Risk Discussion (35% of Term Paper) Citigroup includes a detailed discussion and analysis of Price Risk in its trading portfolios in its 10-K report. • 10-K for 2014: http://www.citigroup.com/citi/investor/data/k14c.pdf. Primary discussion found on pages 110-114 • 10-K for 2005: http://www.citigroup.com/citi/investor/data/k05c.pdf. Primary discussion found on pages 90-91 Discuss the changes in the level of disclosure between 2005 and 2014. As part of your discussion, please address the following points: • Has the framework Citigroup uses for measuring Price Risk changed? • What additional information about their risk management approach have they disclosed in 2014 over that of 2005? Provide at least three examples that you consider significant. • In what ways has the lengthier discussion of 2014 added to your understanding of Citigroup’s price risk management over that of 2005? Please note: You do not need to discuss the actual results of either year; or how the numbers changed from 2005 to 2014. Focus only on the way price risk in the trading portfolios is presented by Citigroup. VaR, Capital Attribution and Profitability (65% of Term Paper) Citigroup reports its proprietary trading activities as a business segment it calls “Principal Transactions.” The attached spreadsheet contains a table of the profits/(losses) for the Principal Transactions segment, by transaction type, over the last 12 years (2003-2014). (This data was taken from Citigroup’s 10-K reports, filed with the SEC, with some reformatting to match the presentation format of 2014, and ignoring an immaterial amount of “Other”.) Using this data, please address the following questions. (For all questions, assume a mean future return of zero, and ignore any autocorrelation.) 1. Line of Business VaR vs. Total VaR a. Using a lookback period of 2003-2014 (i.e., using all 12 years of data), what is the one-year 99% confidence level VaR for each transaction type? b. What is the one-year 99% confidence level VaR for the Principal Transactions business segment as a whole? c. How does the VaR of the total business segment compare to the sum of the VaRs of the individual transaction types? Explain in words what causes this difference. 2. Varying Lookback Periods a. Using a lookback period of just the most recent five years (i.e., 2010-2014), what is the one-year 99% confidence level VaR for each transaction type? What is the one-year 99% confidence level VaR for the Principal Transactions business segment as a whole? b. Compare the VaR of the 2010-2014 lookback period, to the VaR of the 2003-2014 lookback period, by transaction type, and as a whole. Briefly discuss the implications of your comparison.