We undertake a variety of model validation work. Our value is to provide validation where the absolute authority or insight that is needed cannot be supplied easily from standard internal or external auditing procedure. Additionally, we apply our own data and models, where appropriate, for benchmarking purposes. Every single model validation that we undertake is led, personally, by Dr Stephen Satchell.

A summary of our standard model validation process is shown here. Given that our proprietary expertise is in statistical modelling, we address only the validation of the rating system as defined in the diagram provided here.

Our Stress and Scenario Testing solution illustrates how we can offer benchmarking within our validation procedure.

The FSA requirements for formal validation of internal models are that the full documentation and description of models should be such as to permit “white room” replication or “judicial assessment”. These requirements govern our Model Validation service.

A useful definition of model validation is provided in the BCBS Working Paper No 14, “Studies on the Validation of Internal Rating Systems”, Revised Edition May 2005 here.