Model risk mitigation and cost reduction through effective design

Model risk mitigation and cost reduction through effective design
Download Model risk mitigation and cost reduction through effective design

While most of the recent efforts by financial services companies, their regulators, boards of directors, and other constituents focused on strengthening independent model validation programs, this paper offers ideas on how to combat model risk at an earlier stage of the model life cycle – the design phase.

We provide practical recommendations on how to design model production systems in a manner that minimizes model risks and reduces model validation and maintenance costs. Most of the recommendations cost little to nothing to implement, but offer significant potential long term benefits.