The Validation of Risk Models

This book is a one-stop-shop reference for risk management practitioners involved in the validation of risk models. It is a comprehensive manual about the tools, techniques and processes to be followed, focused on all the models that are relevant in the capital requirements and supervisory review of large international banks.

Fully uptodate: It will be entirely focused on the models used in today's risk management practice and as such will constitute a onestopshop for professionals involved in the validation of risk management models Comprehensive: It will be comprehensive: it will cover the whole spectrum of risks, across the technical (market, credit, operational, liquidity, counterparty, etc.) as well as the regulatory categories (Basel Accord II, 2.5, III, Pillar 1, Pillar Market focussed: this will be a practical manual showing how things are actually done in practice both in terms of processes to be set up for validation and in terms of tools and techniques, with a special focus on practical challenges and solutions

Autorentext
Sergio Scandizzo is the Head of Model Validation at the European Investment Bank (EIB) in Luxembourg. He is the author of Risk and Governance: A Framework for Banking Organisations; The Operational Risk Manager's Guide , now in its second edition, and of Validation and Use Test in AMA . He is Associate Editor of The Journal of Operational Risk and has published several journal papers on fuzzy logic, genetic algorithms and risk management.

Klappentext
The practice of quantitative risk management has reached unprecedented levels of sophistication. The pricing, the assessment of risk as well as the computation of the capital requirements for highly complex transactions are performed through equally complex mathematical models, running on sophisticated computer systems, developed and operated by dedicated, highly qualified specialists. With this sophistication, however, come risks that are unpredictable, globally challenging and difficult to manage. Model risk is a prime example of these and precisely the kind of risk that those tasked with managing financial institutions as well as those overseeing the soundness and stability of the financial system should worry about.

This book starts with setting the problem of the validation of risk models within the context of banking governance and proposes a comprehensive methodological framework for the assessment of models against compliance, qualitative and quantitative benchmarks. It provides a comprehensive guide to the tools and techniques required for the qualitative and quantitative validation of the key categories of risk models and introduces a practical methodology for the measurement of the resulting model risk and its translation into prudent adjustments to capital requirements and other estimates.

Inhalt
Introduction: A Model Risk Primer
PART I: A FRAMEWORK FOR RISK MODEL VALIDATION

1. Validation, governance and supervision
2. A validation framework for risk models
   PART II: CREDIT RISK
3. Credit risk models
4. Probability of default models
5. Loss Given Default models
6. Exposure at Default models
   PART III: MARKET RISK
7. Value at risk models
8. Interest rate risk on the banking book
   PART IV: COUNTERPARTY CREDIT RISK
9. Counterparty Credit Risk Models
   PART V: OPERATIONAL RISK
10. The validation of AMA models
11. Use test for operational risk
    PART VI: PILLAR 2 MODELS
12. Economic capital models
13. Stress testing models
14. Conclusion