Model Validation Case Study

Business Problem – A leading bank required the validation of new in-house built IFRS 9 compliant Credit Risk Models – Probability of Default (PD), Loss given Default (LGD) and Exposure at Default (EAD) models.

Approach – The HnC offshore analytics team performed independent model validation in compliance with the clients model risk management framework.  The validation of the models (PD, LGD and EAD) covered all key aspects of model validation including effective challenge of conceptual soundness, model inputs, data quality, quality of documentation and alignment with IFRS 9 guidelines.

Results

A comprehensive model validation report was produced, providing detailed documentation of the validation process, results of the validation identifying issues, concerns and recommendations for improvement.