Financial modeling and model validation

Banks, monoline financial guarantee insurers, and other financial institutions, as well as organizations in many other industries, increasingly use complex models in the day-to-day operations of their business to:

  • Value assets (including hedges and derivatives), liabilities and capital requirements;
  • Evaluate different capital and other resource allocations, business strategies, business plans, acquisitions, divestments and capital expenditure projects; and,
  • Consider different financing options.
PwC helps a wide range of companies design, develop and implement financial modeling strategies. We have technical expertise in model design, building, testing and validation, as well as in financial economics, management behavior codification, project management, and risk management.

Potential issues

  • You want a clearer understanding of your business's risks and dynamics.
  • You want to explore different business strategies and how they might affect your organization's profitability and financing requirements.
  • You want to understand the effects of different reporting and profit measures (e.g., IFRS.).
  • You want to develop and model hedging strategies.
  • You wish to independently validate your existing financial models.

How we can help

  • Provide management with more useful information and tools for making strategic decisions.
  • Improve working capital and financial management.
  • Aid your understanding of your company's dynamics and the factors that the risk management framework should consider.
  • Provide a deeper understanding of your company's financing needs and return on capital under different business plans or management strategies.
  • Demonstrate to your stakeholders that management has integrated financial modeling into the decision-making process.
  • Provide independent comfort that your financial models operate as intended, and provide advice on potential improvements to your models.

Our services

  • Technical expertise in financial economics.
  • Codification of management and policyholder behavior, and principles and practices of financial management (PPFMs) integration into model design.
  • Building models; we can second PwC specialists during this process, as appropriate.
  • Project management and implementation, including quick wins and timeframe assurance.
  • Advice on appropriate financial modeling tools and controls.
  • Advice on regulators' and rating agencies' perspectives on financial model implementation.
  • Development of model risk management frameworks.
  • Design and implementation of model validation policies, and independent model validation and testing.
  • Advice on communicating model results to appropriate stakeholders and embedding financial models into management practices.
  • Development of a capital management and allocation framework.