Basel 3, Dodd-Frank, Solvency II, and of course, the Supervisory Guidance on Model Risk Management (OCC Bulletin 2011-12) all continue to force a major shift in model risk governance and current model validation best practices. This has led us to explore new and innovative model validation approaches.

In this Valuation Risk Handbook article, David Eliezer, PhD, Vice President and Head of Model Validation at Numerix , first discusses model validation as it is practiced today and then introduces new insights and best practices when it comes down to testing with mathematical identities.

Highlights include:

  • New Testing Approaches, Compute Power and Satisfying Regulators
  • Model Validation as it is Practiced Today
  • Parallel Implementation and Convergence & Stress Tests
  • Testing with Mathematical Identities
  • Partial Differential Equation (PDE) Test
  • Calibration Round Trip Test
  • Financial Correctness and Hedge Performance
     

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    As Published in Voltaire Advisors’ Valuation Risk Handbook

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