Model Risk and Model Validation

Course Description

Commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognised and encouraged by bank regulators. Banks have extended these efforts into the field of credit, market, liquidity and operational risk modelling. However, an important question for both banks and their regulators is evaluating the accuracy of a model’s forecasts of losses, especially given the small number of available forecasts due to typically long planning horizons.

Model development is a complex and error-prone process. While many completed models work as planned, some models contain fundamental errors. Moreover, the internal logic of most models is usually very abstract and limiting, so it requires considerable judgment and expertise to apply model results outside of the narrow context under which they are derived.

This practical course will offer insights into the nature and manifestation of model risk (with a focus on market and credit risk) and identify the implications for misidentifying or neglecting model risk. The exploration of some practical examples will highlight how an apparently well- behaved model can behave very differently under different conditions and the consequences can be catastrophic.

Credit, market and operational model risk will also be examined in the light of the credit crunch and other financial crises. How did these risks influence the severity and duration of the crises? How did a lack of liquidity, strained credit and other issues exacerbate the problem and how can these problems be avoided in future? What are best practices available to validate models?

Learning Objectives

At the end of the course participants will be able to:

  • Acknowledge the importance of model testing
  • Identify the main sources of model risk
  • Explain the potential consequences of neglecting model risk
  • Assess the impact of model risk on various instruments in the banking book
  • Be aware of Basel II, III and IV’s consideration of model risk and their relevance to Pillar 2
  • Identify processes to limit (if not entirely eliminate) model risk
  • Assess the role of senior managers in managing model risk
  • Identify procedures for vetting and reviewing models ê Understand best practice for model validation and know some techniques to implement this
  • Acknowledge the function of an independent risk oversight (IRO) unit.

Who Should Attend?

  • Strategic Business Development professionals
  • Risk department staff
  • Regulatory department staff
  • Internal Auditors
Please bring a laptop computer for this PC-based event, or contact us on how we can assist you with this.
Earn 16 hours CPD points for attending this event!
For the past two years, Gary has worked as an independent consultant on projects for the European Central Bank’s TRIM (targeted review of internal models). His focus has been on quantitative credit risk assessment and management in financial institutions (principally the Basel regulatory accords).
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Payment Methods: Kindly note that payment is required no later than 14 days from invoice date. In the event of nonpayment, Masterclass Events reserves the right to cancel the booking and the full amount under disagreement will be due and payable.

Confirmation Details: Upon reception of your booking, we will e-mail each registered person our delegate confirmation pack. This pack will include venue information with a map and specific event details. If you have not received confirmation within one week of booking, kindly contact us on 012 654 8615 for assistance. Delegate fees include all workshop materials, lunch and refreshments for each day. Please note that hotel accommodation and travel are not included in the price. We can offer travel and hotel booking assistance if required. If you require any travel assistance please contact us.

Cancellation and Transfer Policy: Delegates unable to attend the event may send a substitute delegate in their place. Please send written details of substitution. Written cancellations must be received more than 10 working days prior to the date of the event and will be liable for 50% of the event fee. Failure to cancel, or cancellations received 10 working days or less prior to the event date, will result in liability for the full event fee. Masterclass Events reserves the right to alter the program and speaker details without notice.

R 13 495.00 (VAT Excl) per delegate

Group Discounts
3+ delegates: 10% group discount
5+ delegates: 15% group discount

Bookings are confirmed upon receipt of signed registration form. All prices are exclusive of 15% VAT.

There is a R605 per day surcharge for Kosher & Halaal Meals.

Payment Methods:
Kindly note that payment is required no later than 14 days from invoice date. In the event of nonpayment, Masterclass Events reserves the right to cancel the booking and the full amount under disagreement will be due and payable.

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