Model risk
Hints on quantification approaches
Tiziano Bellini, head of risk integration competence line, international markets at Prometeia, examines the key components of successful model risk management, focusing on the importance of integration, processes, governance and IT solutions to…
Don’t follow the models: they’re lost, too – risk managers
Risk USA: managers cite Covid, repo crisis and geopolitical risks as examples of model failures
Scalability could trump complexity in machine learning debate
Risk USA: banks “on the precipice” of adopting more complex models, says Goldman exec
FRTB starts ‘tug of war’ between front and back offices
Risk USA: dealers face trade-off between accuracy of pricing models and level of capital charges
Model risk management: building trust and governance
As organisations increasingly rely on models that cover a wide range of business functions, there is an increasing need to create and maintain a comprehensive model inventory for enhanced collaboration and regulatory compliance across multiple regions…
BNY Mellon incurred a VAR breach in Q2
The highest losses-to-VAR ratio was 145.75%, in the first backtesting exception reported by the bank since 2018
Stronger together: CLS’s chief risk officer on risk culture
Deborah Hrvatin discusses integrated risk management, mega-hacks and model risk
Show your workings: lenders push to demystify AI models
Machine learning could help with loan decisions – but only if banks can explain how it works. And that’s not easy
New BoE climate risk scenarios spark race for extra data
Banks need information from clients or third parties to populate 1,760 stress test variables
Podcast: Claudio Albanese on how bad models survive
Darwin’s theory of natural selection could help quants detect flawed models and strategies
A Darwinian theory of model risk
An ex ante methodology is proposed to analyse the model risk pattern for a broad class of structures
Banks fear Fed crackdown on AI models
Dealers say agencies’ request for info could prompt new rules that stifle model innovation
Quantum computing experts voice explainability fears
Risk Live: big speed-ups for quantum-powered models could prompt bigger questions from regulators
US unit of BBVA on the brink of a VAR breach in Q1
Largest loss-to-VAR ratio at the firm was highest among the 12 intermediate holding companies
From one extreme to another: Covid upsets loan models once more
Unusual economic slumps tripped up models in 2020. Now, they are struggling with fast recoveries
Morgan Stanley, Bank of America push VAR limits the most
Largest losses-to-VAR ratios at the two firms were the highest among the eight systemic US banks in Q1
US watchdogs seek to govern bank AML systems as models
Banks fear prudential agencies’ move could hamper their own ability to fight financial crime
Model reviews imposed capital charges on top EU banks in Q4
Societe Generale incurred a -36bp hit to its CET1 ratio due to Trim
Statistical properties of the population stability index
This paper aims to fill a gap in the literature by providing statistical properties of the population stability index (PSI) and some recommendations on its use.
Parallel lines: EU begins fight over Basel output floor
Leaked plan to exclude buffers from floor would please EU banks, could anger Basel and US
Fed will start FRTB model approvals for US banks in 2021
Senior official says banks should now be deciding desk structure and readying backtests
Quants tout alternative carry trades for the ‘new normal’
Low rates and flatlining yield curves leave investors seeking carry in swaps and swaptions
Level 3 assets fell at top US banks in Q2
Mark-to-model instruments disclosed by banks over $100 billion in size contracted 4%
Hypothetical yield curve scenarios for credit stress testing
In this paper, we discuss a set of hypothetical yield curve shift scenarios generated by applying extreme value distributions and a shaping procedure. These statistically derived hypothetical stress scenarios could be susceptible to model risk, leading…