Model Risk Management Best Practices

Course Overview
This one-day seminar covers the key aspects of model risk management as practiced by leading financial institutions. The course addresses, from a practical viewpoint, common issues of model design inadequacy, parameter flaws, interpolating and bootstrapping errors, and reliance on back testing of out-of-sample data sets.

It will also address issues of regulatory compliance and governance, policies, and controls from a functional perspective with respect to model risks in banking. The course will reference the Interagency Guidance on Model Risk Management from the Federal Reserve and Office of the Comptroller of the Currency (OCC) issued earlier this year.

Who will benefit?

• Auditors (internal/external)
• Industry regulators
• Credit and market risk managers
• Risk controllers
• Finance department
• Compliance officers
• Those responsible for delivering the Basel II and Basel III regulation.

You will:

• Develop an in-depth understanding of model risk best practices and how to apply them at your institution.
• Create effective models that provide meaningful benefits for your institution.
• Learn how to map to risk factors within pricing models.
• Understand and know how to implement sound governance, policies, and controls pertaining to model risks in banking.

Course Curriculum:

• Introduction of model risks and illustration of severe losses resulting from inadequate use of models in banks.
• Internal Rating Models and Challenges:
  • Calibration to Rating Agencies Models (PDs)
  • Validation Issues
  • Reliance on Spreads and other Market Data
  • Reliance on Historical Back Testing
• Pricing Models and Risk Sources:
  • Mapping to Risk Factors
  • Wrong and Corrupt Datasets on Key Parameters: Rates, Volatilities, ETF Values, etc.
  • Interpolation and Bootstrapping Errors
• Market Risk Models:
  • Errors Resulting from Dimensionality Reduction:
    • Cholesky decomposition
    • Eigenvalue-eigenvector analyses
  • Market Liquidity Concerns:
    • LVaR; liquidity at risk; stress VaR, expected shortfall (CVaR) and other mitigating measures
• Credit Portfolio Models and Economic Capital Models:
  • Precision vs. Utility – Discussion
  • Marginal Economic Decisions – Examples
• Governance, Policies, and Controls – Best Practices
• Group Discussion 

For more information, please contact your representative:

Mark Heaton
Senior Regional Consultant, Europe
The Risk Management Association
27 Old Gloucester Street
London
WC1N 3AX
Tel 44 (0) 1732852225
Mob 44 (0) 7976722851
mheaton@rmahq.org