The critical role played by internal models, industry leading practices and regulatory requirements dictate that financial institutions implement an independent model validation process to assess the quality and accuracy of their internal models.

Independent validation of internal statistical models is in increasing demand under Basel framework. Firms worldwide need to invest and implement a strong mechanism via systems to authenticate the precision and reliability of rating systems, processes, and the appraisal of all relevant risk components. In addition, firms must also demonstrate to regulators the completeness of their internal models validation process.

While the various aspects of model quality can be assessed with complicated quantitative procedures, qualitative judgment is essential to guarantee that the financial institutions are using the correct model. As a consequence, the efforts involve a combination of in-depth knowledge in analytical validation techniques as well as banking industry practices.

We add value by helping our clients to implement a model validation process. Our services include qualitative and quantitative model validation analytics to test the mathematical integrity and conceptual soundness of estimation models in line with global estimation standards. We provide:

Initial model validation:  Review of the model development, the processes and the execution of the model.

Ongoing model validation: Ongoing validation of rank-order performance using industry wide standard metrics.