Risk Model Validation (2nd Edition)
Risk Model Validation (2nd Edition)
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This new edition provides financial institutions with a toolbox to raise the key questions when it comes to integrating the results of quantitative risk models into business decisions.
Readers will be able to:
- Evaluate the validity of a model;
- Judge the model’s quality, consistency and regulatory compliance;
- Improve a framework for validation; and
- Tailor a model-risk approach for their institution.
Chapters include:
- Basics of Quantitative Risk Models
- How Can a Risk Model Fail?
- The Regulatory Perspective on Risk Model Validation
- Validation Toolbox 1: Focus on Model Results
- Validation Toolbox 2: Focus on Model Assumptions
- Validation Toolbox 3: Focus on Data and Software
- Implementing a Model Risk Framework
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Table of contents
About the Authors ix
Abbreviations xi
Introduction 1
PART I: QUANTITATIVE RISK MODELS 5
1 Basics of Quantitative Risk Models 7
2 Usage of Statistics in Quantitative Risk Models 21
3 How Can a Risk Model Fail? 41
PART II: MODEL RISK AND RISK MODEL VALIDATION 77
4 The Concepts of Model Risk and Validation 79
5 Model Risk Frameworks 103
6 Validation Tools 119
7 Regulation 161
PART III: MODEL RISK IN MARKET RISK MODELS 187
8 The Short-term Perspective 189
9 A Benchmark Model for Market Risk 207
10 The Medium-term Perspective 247
PART IV: MODEL RISK IN CREDIT RISK MODELS 271
11 Modelling and Simulation 273
12 Data 293
13 Model Results 319
14 Conclusion 345
References 351
Index 363