Model risk is an eminently practical issue – yet it is the most misunderstood source of losses, reputational dramas, and arguments with regulators. Standard methods exist to mitigate model risk, yet practitioners often struggle to define it as a mathematical quantity and to calculate it.
 
Moreover, beyond the quantification of model risk, practitioners also question whether model risk can be managed in a similar way to market risk or credit risk, for example by creating model reserves and model limits (analogous to credit reserves and credit limits).

On Wednesday, February 11th, 2015 featured speakers Dr. Massimo Morini of IMI Bank of Intesa Sanpaolo and Dr. David Eliezer of Numerix discussed ways to detect model risk, explain model choices, and set up proper risk management procedures in order to mitigate model risk.

In the first part of our presentation, Dr. Morini focused on model reserves and model limits, showing how they can be quantified and implemented through real-world examples:

  • Model reserves and model limits
  • Quantification based on mathematics, accounting and regulations
  • Three examples of model risk management for credit, equity and rates

In part two of the webinar, Dr. Eliezer discussed additional ways to quantify and monitor model risk:

  • Practical methods for estimating the model risk of a derivative
  • Using daily hedge errors in a systematic way to monitor models for signs of model failure
To view the webinar replay, register on the right side of this page.

Featured Numerix Speakers:

Dr. Massimo Morini, Head of Interest Rate and Credit Models at IMI Bank of Intesa Sanpaolo; Professor of Fixed Income at Bocconi University in Milan; Numerix Quantitative Advisory Board
Dr. Massimo Morini, Head of Interest Rate and Credit Models at IMI Bank of Intesa Sanpaolo; Professor of Fixed Income at Bocconi University in Milan; Numerix Quantitative Advisory Board Massimo Morini is Head of Interest Rate and Credit Models at IMI Bank of Intesa Sanpaolo, where he is also Coordinator of Model Research. He is also Professor of Fixed Income at Bocconi University and he was Research Fellow at Cass Business School, City University London. He regularly delivers advanced training worldwide and has led workshops and expert panels on the financial crisis at major international conferences. He has been a long-term consultant for the World Bank and other institutions.
 
Dr. Morini has published papers in journals including Risk Magazine, Mathematical Finance, and the Journal of Derivatives, and is the author of "Understanding and Managing Model Risk: A Practical Guide for Quants, Traders and Validators" and other books on credit and interest rate modelling. He holds a PhD in Mathematics and an MSc in Economics.

Dr. David Eliezer, Vice President, Head of Model Validation, Numerix
David Eliezer has been a quant on Wall Street for 18 years, at Goldman Sachs, Morgan Stanley, General Re Financial Products, and Bloomberg, among others. He has published work on option pricing, and on modeling liquidity in finance. He runs the internal testbed for Numerix models, and he leads the Model Validation group at Numerix.

Moderator: Jim Jockle, Chief Marketing Officer
Mr. Jockle leads the company's global marketing efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to customers in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.

Prior to joining Numerix, he served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, Mr. Jockle built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. He also oversaw the brand development of a new company dedicated to the enhancement of credit derivative and structured-credit ratings, products and services. Prior to Fitch, Mr. Jockle was a member of the communications team at Moody's Investors Service.

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