Our team helped a bank with multiple model management tasks, including updating model inventory, developing internal guidelines, assisting 1st line in model assessments. We have performed several pricing model validations (in equity and commodity asset class) and an implementation review of different elements of FRTB SA calculations.
- We perform model validation in close cooperation with the client, jointly determining the scope of validation and frequently aligning during the validation process.
- We routinely assist financial institutions in assessing the quality and suitability of model and data vendors and providing advice to your organization.
- We assemble a team of consultants for each model validation project with suitable skills and expertise.
- We can structure the assignment as a project, interim, or internal and external staff combination.
- A quick scan of your model(s) can help your organization add value in the most cost-efficient way.
- Model validation as a service is the optimal proposition for clients with frequent reoccurring tasks within the model validation process.
- Assessment of the model environment, business use, and portfolio in scope;
- Assessment of the regulatory compliance of the model (for regulatory models);
- Assessment of model documentation;
- Input data assessment;
- A methodological review of the model, including assumptions and theoretical soundness;
- Benchmarking the model to alternative models and industry best practices;
- Validation of the model parameters and calibration approaches;
- Performing sensitivity analysis of the model outcomes to parameters and input data;
- Advising on alternative models and model improvements;
- Evaluating model performance by means of back-testing;
- Implementation check, including the creation of an independent model implementation prototype.
Validation scope and level of detail depend on validation type (e.g., initial validation, revalidation, periodic review) and the client’s preferences.
- Assess the model governance;
- Help your organization incorporate model risk management across three lines of defense;
- Perform audit of model development, use, or validation processes;
- Regulatory compliance check of the models and their governance.
- Help your organization determine model risk appetite.
- Create or review model-related policies and procedures.
- Create model development guidelines and standards.
- Create or review model inventory, including model categorization.
- Develop minimum requirements for model validation per asset class or model type.
- Calculate reserves required to cover model errors and insufficiencies.
Probability & Partners helped a bank with the assessment of Credit risk data vendors, as well as with the review of the model governance. Our team performed a technical evaluation of multiple vendors for suitability as a data vendor for a regulatory model update.
Our unique expertise in clearing models, enabled us to assist the Central Clearing Counterparty with an internal model review of the new initial margin model.
Probability & Partners performed validation and governance review of the interest rate in the banking book for the client, as well as validation of the liquidity risk management model.
We have performed an audit of several models for a large Dutch insurer, including audit of model requirements, model test process, risk appetite as well as model governance.