The validation of derivative pricing models can be a slow, labor intensive and expensive exercise. Furthermore, it often provides a limited amount of certainty on the correctness of the pricing models, because methods for validating pricing models are often generic methods that can be applied to most kinds of models. In other words, they do not take advantage of our knowledge of the nature of the problem, and the special features in it.

Since pricing models are mathematical models, they satisfy mathematical identities which can provide strong tests that leave very little possibility for error. Furthermore, these tests provide failure conditions that require no human judgment, that can be automated, and that can therefore run over tens of thousands of test scenarios. Significant advances in computing power such as the cloud and grid computing now make automated testing more accessible to market practitioners, making the testing inexpensive, rapid, and easy.

This results in a faster time-to-market for validating models, and a stronger case can be made to regulators that models are not only thoroughly tested, but that the models are really, truly RIGHT.

On Wednesday, November 19th featured speaker Dr. David Eliezer, Vice President and Head of Model Validation at Numerix, discussed how practitioners can utilize a variety of automated model tests to uncover and then fix problems with their models, using several case studies to illustrate examples of the tests.

Dr. Eliezer covered:

  • Rationale for automated model testing

  • Overview of four automated model tests

    • PDE test

    • Greek smoothness test

    • Calibration round trip test

    • Hedge performance test

  • Case studies delving into each of the tests

    • Rationale for test

    • Test methodology

    • Example

    • Problems, implications, and fixing the models

To view the on-demand webinar, just register on the right side of this page.

Featured Speakers:

Dr. David Eliezer, Vice President and Head of Model Validation, NumerixDavid Eliezer, PhD, Vice President, Head of Model Validation
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.

James Jockle, Chief Marketing Officer, NumerixModerator: 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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conference presentation

Margin Valuation Adjustment: Initial Margin for Client Trades & Dynamic Hedges