The Validation of Risk Models ─ A Handbook for Practitioners

The practice of quantitative risk management has reached unprecedented levels of sophistication. The pricing, the assessment of risk as well as the computation of the capital requirements for highly complex transactions are performed through equally complex mathematical models, running on sophisticated computer systems, developed and operated by dedicated, highly qualified specialists. With this sophistication, however, come risks that are unpredictable, globally challenging and difficult to manage. Model risk is a prime example of these and precisely the kind of risk that those tasked with managing financial institutions as well as those overseeing the soundness and stability of the financial system should worry about.
This book starts with setting the problem of the validation of risk models within the context of banking governance and proposes a comprehensive methodological framework for the assessment of models against compliance, qualitative and quantitative benchmarks. It provides a comprehensive guide to the tools and techniques required for the qualitative and quantitative validation of the key categories of risk models and introduces a practical methodology for the measurement of the resulting model risk and its translation into prudent adjustments to capital requirements and other estimates.

Sergio Scandizzo is Deputy Advisor at the European Investment Bank in Luxembourg. He is associate editor of The Journal of Operational Risk and has been recognized as one of the "Top 50" Face of Operational Risk by OpRisk & Sergio Scandizzo is Deputy Advisor at the European Investment Bank in Luxembourg. He is associate editor of The Journal of Compliance Magazine.

Prior to his position at the EIB he was a principal in the London office of PricewaterhouseCoopers and, prior to that, a senior manager in the Global Risk Advisory team at the Canadian Imperial Bank of Commerce in Toronto. He holds degrees in computer science and finance and is author of three books and several articles on risk management and bank governance.