-
2.5X
increase in vendor model testing
-
50%
cost saving for the MRM programme
-
40+
models tested, meeting all criteria related to rigor and timelines
CLIENT CHALLENGES
- The client wanted to strengthen its model validation practice, especially for current expected credit losses (CECL) and capital planning and stress testing (CPST) models relating to its entire portfolio suite
- Most vendor models used by the client employed sophisticated methodologies such as discrete time survival modeling (DTSM) and required strong conceptual understanding to perform any meaningful validation exercise
OUR APPROACH
- Acuity Knowledge Partners (Acuity) deployed a team of two quants specialists and a supervisor with extensive experience in credit modeling
- The team carefully examined vendor models and performed exhaustive testing to identify gaps in the probability of default (PD), exposure at default (EAD) and recovery models. The team also suggested action items to remediate some of the model shortcomings
- In addition to the conceptual assessment of the model, the Acuity team studied model data quality, model usage, model controls and model calibration to client portfolio behaviours
- Acuity also helped the client design and implement a framework for ongoing model monitoring
- Model validation lifecycle:
- Step 1: Model review and understanding
- Step 2: Qualitative validation
- Step 3: Quantitative validation
- Step 4: Documentation and reporting
IMPACT DELIVERED
- Thorough testing of the vendor model inventory, effective project management and relevant industry experience enhanced the practicality and overall value of our support
- High-quality output, driven by subject-matter expertise and a rigorous quality-check process
- Provided highly qualified and experienced resources at a fraction of the cost
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