Model Validation

The basic framework with which AGNITYA approaches models within the organisation has two main aims; the first is to assess whether the model lifecycle is effective and the second is to gain assurance that the model is fit for purpose, with the two being inextricably linked. This approach ensures that model risk framework is inline with the expectation of ECB (TRIM guidelines) and other European local regulatory bodies.

Model - a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates. The definition of model also covers quantitative approaches in which inputs are partially or wholly qualitative or based on expert judgment, provided that the output is quantitative in nature.

Model Risk - the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Model risk can lead to financial loss, poor business and strategic decision making, or damage to a bank's reputation.

AGNITYA assumes the following sources of model risk – 

1. Data deficiencies in terms of quality and availability;
2. Fundamental errors in the model i.e., assumptions, implementation methodology, input choices, approximations etc.;
3. incorrect use of the model.
   

The main body of AGNITYA offers the complete model review framework which is designed as:

1. Model Governance: Ensure the model are developed under  model governance and the assess efficiency of  Regulatory gap analysis.
2. Model Development: We  fulfil  the Adherence to modelling standards and ensure complete model documentation with development testing, data quality controls.
3. Model Validation: AGNITYA ensures that the independent model validation also assess the   periodicity of Model validation and review.  The model validation fulfil the completeness of the model validations scope and are in line with applicable standards. The validation findings are tracked for follow up.
4. Model Implementation: AGNITYA performs the  user acceptance Tests (UAT)
5. Model Approval: AGNITYA performs  the check for model approval and approval conditions  
6. Model Maintenance and Performance: AGNITYA provides performance monitoring, review of assumptions and parameters and also the change management/testing. AGNITYA's model maintenance and performance is based on examining the model use,  model scope and purpose, and  Input data quality control.

• Pricing Model Validation
• Credit Risk Model Validation
• Market Risk Model Validation
• Regulatory Model Validation