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This presentation is based on a part of an academic course on Advanced Enterprise Risk Management (Advanced ERM) titled ‘Formulating, implementing and validating risk models’ and covers topics such as: model selection (including methodologies and parameterisation), model validation, evaluating inputs / implementation and evaluating outputs

Slides

1	Session 8: Formulating, implementing and validating risk models
2	Session 8: Formulating, Implementing and validating risk models
3	Model selection: general issues
4	Example users and uses of models
5	Models may:
6	Session 8: Formulating, Implementing and validating risk models
7	Example: credit risk models and methodologies
8	There are different dimensions to risk
9	Credit risk with and without interest rate risk
10	Stochastic spreads also potentially important
11	Risk versus pricing
12	How might we create a general framework?
13	Short-term volatility models
14	Longer holding period models
15	Fundamental data limitations
16	Session 8: Formulating, Implementing and validating risk models
17	Introduction to parameterisation
18	Notation
19	Factor structure
20	Example factor structure (1)
21	Example factor structure (2)
22	Estimating factor loadings, e.g.
23	How might we calculate pair-wise correlations?
24	Benchmarking
25	Correlation structure implicit in Basel II
26	Session 8: Formulating, Implementing and validating risk models
27	Validation
28	E.g. a credit risk model
29	E.g. internal ratings assessments
30	Possible approaches include
31	Possible performance measure, for default models
32	Validation of statistical inputs
33	Validation of implementation
34	Session 8: Formulating, Implementing and validating risk models
35	Evaluating outputs
36	Model risk and back-testing
37	Model assessment
38	Link with calibration
39	Ideally model should also fit well 'period by period'
40	Look-back bias and in-sample testing
41	Look-back bias and out-of-sample testing
42	Market consistent risk measurement
43	Back testing in other regulatory frameworks
44	Session 8: Agenda covered
45	Important Information

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