Model Risk Assessment

Model risk assessment examines a model’s overall risk by stress testing the model, testing the model by instrument decomposition and by using standardized testing to confirm model accuracy.

The Numerix Risk Scenario Framework functionality allows our team to customize as many market scenario shocks as desired, which can then be applied to any market scenario from history. We may therefore stress the model with either a standardized (e.g. a ladder report) or randomized set of shocks applied to various scenarios taken from historical data.

Test of the Model by Instrument Decomposition

Because Numerix separates the model from the payoff and the method, a Numerix model may be further explored by using the same model to remove features from the instrument—some or all of the call or put dates, a barrier, or a digital feature such as a range accrual. These features are often subject to errors of numerical implementation, and these types of errors they may be rapidly be tracked down by the decomposition that the Numerix architecture allows.

Standardized Testing

Whether your front office and risk department are utilizing Numerix analytics or you are utilizing proprietary models, Numerix financial engineers employ the use of standardized tests to confirm model accuracy and performance confirming both mathematical and financial correctness of the models.