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42 Management Report – münchener Hypothekenbank eg l annual Report 2011 Specific interest risks are also referred to as (credit) spread risks, and are included under market price risks. Credit Spread is the term used to describe the difference between the yield generated by a risk-less bond and a risky bond. Spread risks take into account the danger that this difference in interest rates can change although creditworthiness ratings remain unchanged. The reasons for altered yield premiums are: >> varying opinions in the market, >> the creditworthiness of the issuer actually changes although the issuer’s credit rating does not yet reflect this change, >> macro-economic factors that influence creditworthiness categories. This risk was at the forefront of attention in 2011 due to debt and confidence crisis in certain sovereign states in Europe. The sharply widening spreads seen in some cases, especially in Greece, also affected the valuation of our portfolio of securities. The extent of the Bank’s investments in bonds issued by euro- zone countries that were more affected by the sovereign crisis, or in bonds issued by banks domiciled in these countries, is moderate. Figures shown under “Sovereign states” also include claims against non-government debtors, which are additionally secured by direct and immediate guarantees issued by the respective state, in addition to government bonds or other public-sector bonds. We do not believe that our investments are currently in danger of default. However, as a result of the political decisions made at EU level we have taken a write-off of € 65.3 million on our entire portfolio of Greek securities. We are of the opinion that the measures taken by individual states, as well as protective mechanisms enacted at EU levels, are appropriate to ensure that the affected liabilities will be repaid. In the case of bank bonds, almost all of these bonds are covered bonds so that in this in- stance it may also be anticipated that they will mature and be honoured without delay. Among other risks, options involve the following risks: volatility risk (Vega; risk that the value of a derivative instrument will change due to increasing or decreasing volatility), time risk (Theta; time risk measures how passage of time impacts on the value of a derivative instrument when part of the value is deter- mined by the remaining time left until a contract expires), Rho risk (risk associated with a change in the value of the option Sovereign States Banks total Nominal value in million € covered uncovered 31 Dec. 11 31 Dec. 10 31 Dec. 11 31 Dec. 10 31 Dec. 11 31 Dec. 10 31 Dec. 11 31 Dec. 10 Portugal 95 95 197 227 20 30 312 352 Italy 97 121 60 40 40 15 197 176 Ireland 30 30 60 60 0 0 90 90 Greece 108 108 0 0 0 0 108 108 Spain 122 152 700 700 5* 5* 827 857 Total 452 506 1,017 1,027 65 50 1,534 1,583 * With explicit state guarantee