Model Risk Management and Validation

We led the implementation of an independent model validation unit, covering the organisational setup, policy definition, process setup, including approval and reporting processes, and definition of detailed validations scope. Our client passed internal and independent audits by the regulator with regards to the compliance of its model validation activities.

We provided an independent quantitative model validation and benchmarking for a complete front office pricing suite. The model validation activities led to a major improvement program for the central components of the pricing models.

We provided an independent quantitative model validation and benchmarking for a front office mark-to-market valuation for a wide spectrum of derivative securities across all main product classes. Open Source Risk Engine (ORE) was implemented as a benchmarking tool to independently verify the front office valuations.

We provided an independent quantitative and qualitative validation of the bank's system used for marking and sensitivity analysis of structured finance securities. The bank's solution is based on a third-party vendor library and, therefore, the specifics needed to be taken into account. The validation included integration tests, input slider tests and consistency checks of the various marking metrics (yield, discount margin, Z-spread), the sensitivities (CD01, DV01) as well as WAL, duration and convexity. To validate that optionality is appropriately captured, we also performed consistency checks and benchmarks of the calculation of option adjusted spread (OAS) and its sensitivities (OAD, OAC). We delivered a full validation report in compliance with the bank's model governance policy.