Credit exposure models backtesting for Basel III

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A central component of the Basel III document is ‘Sound practices for backtesting' (Basel Committee on Banking Supervision 2010): a summary of regulatory guidance on how to validate and backtest the internal model method (IMM) for credit exposure. Similarly, a series of requirements from Capital Requirements Directive IV (CRD IV), the European equivalent of Basel III, indicate that backtesting and validation are core components of good governance for IMM firms.

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