NATIXIS_REGISTRATION_DOCUMENT_2017

FINANCIAL DATA Consolidated financial statements and notes

The main models for determining the fair value of these instrumentsare describedbelowby type of product: Equityproducts : complexproductsare valuedusing: a marketdata; j the “payoff”, i.e. a calculation of positive or negative cash j flows attachedto the productat maturity; a modelof changesin the underlyingasset. j The products traded may be mono-underlying,multi-underlying or hybrid (e.g. fixed income/equity)products. The main models used for equity products are local volatility, local volatility combined with the one-factor Hull & White (H&W1F)model,as well as the Tskewand Pskewmodels. The local volatilitymodel treats volatilityas a functionof time and the price of the underlying.Its main property is that it considers the implied volatility of the option (derived from market data) relativeto its exerciseprice. The hybrid local volatility combined with H&W1F consists of combining the local volatility model described above with a one-factor Hull & White model, described below (see fixed-incomeproducts). The Tskew model is a valuation model for mono and multi-underlying options. Its principle is to calibrate the distribution of the underlying asset or assets at maturity to standardoptionprices. The Pskew model is similar to the Tskew model. It is used in particular for simple ratchet equity products such as capped or flooredratchetproducts. Fixed-incomeproducts : fixed-incomeproductsgenerallyhave a specific characteristicswhich justify the choice of model. The valuationof the payoff will take into account all underlyingrisk factors. The main models used to value and manage fixed-income products are Hull & White models (one-factor and two-factor models or one-factor Hull & White stochastic volatility model), the Hunt Kennedymodeland the “smiled”BGMmodel. The Hull & White models are simple pricing models for plain vanilla fixed-income products and can be calibrated easily. Products valued using these models generally contain a Bermudan-type cancellation option (i.e. one that may be exercisedat certaindates set at the beginningof the contract). SBGMand Hunt Kennedymodelsare used to value fixed-income productsthat are sensitiveto volatilitysmiles (i.e. impliedchange in volatility relative to the exercise price) and to autocorrelation (or correlationbetweeninterestrates). Currencyproducts: currency products generally have specific a characteristicswhich justify the choiceof model. The main models used to value and manage currency products are local volatility and stochastic models, as well as the hybrid models combining an underlying currency model with two one-factor Hull & White models to understand fixed-income factors. Inputs relating to all such Level 2 instruments were demonstrated to be observable and documented. From a methodology perspective, observability is based on four inseparablecriteria: inputs are derived from external sources (primarily a a recognizedcontributor,for example); they are updatedperiodically; a

they are representativeof recenttransactions; a their characteristicsare identical to the characteristicsof the a transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented. The fair value of instrumentsobtained using valuationmodels is adjusted to take account of liquidity risk (bid-ask), counterparty risk, the risk relating to the cost of funding uncollateralizedor imperfectly collateralized derivatives, own credit risk (measurementof liability derivativepositions),modeling risk and input risk. The margin generatedwhen these instrumentsbegin trading is immediatelyrecognizedin income. Level 3: Fair value measurement using non-observable c) market data Level 3 comprises instruments measured using unrecognized models and/or models based on non-observable market data, where they are liable to materially impact the valuation. This mainly includes: unlistedshareswhosefair value could not be determinedusing a observableinputs; Private Equity securities not listed on an active market, a measuredat fair value with models commonlyused by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involvesa judgmentcall; structuredor representativeof private placements,held by the a insurancebusinessline; hybrid interest rate and currency derivatives and credit a shares of UCITS for which the fund has not publisheda recent a NAV at the valuationdate, or for which there is a lock-upperiod or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) in respect of the low liquidityobservedfor such shares; instrumentscarried at fair value on the balance sheet and for a which data are no longer available due to a freeze in trading in the wake of the financial crisis, which were not reclassifiedas “Loansand receivables”pursuantto the amendmentto IAS 39 and IFRS 7 published on October 13, 2008 (see below) . When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data. In accordancewith the decreeof February 20, 2007,amendedby the decree of November 23, 2011,relating to regulatory capital requirements applicable to credit institutions and investment firms, and in accordance with the European Capital Requirements Regulation (CRR) of June 26, 2013 on requirements resulting from Basel 3, a description of crisis simulations and ex-post controls (validation of the accuracy and consistency of internal models and modeling procedures) is provided for each model used in Section 3.7of Chapter 3,“Risk and CapitalAdequacy”. Under IAS 39, day-one profit should be recognized only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parametersinput into the valuationare observable. derivativesthat are not classifiedin Level 2; instrumentswith a deferredday-onemargin; a

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Natixis Registration Document 2017