List of Model Validation Questions

From Open Risk Manual

List of Model Validation Questions

Model Validation is a varied exercise and the precise elements involved depend significantly on the nature of the models being validated, the context and importance of Model Usage. The following list is a general blueprint.

Evaluate the Model Governance context

  • Does the organization have a Model Governance framework? If not, what is applicable Internal Governance?
  • Has the model been commisioned, developed and operated internally in accordance with that framework.
  • What are the regulatory requirements (if any)

Evaluate the Model Development context

  • The sourcing of data: Are the data used to built and/or operate the model comprehensive, with appropriate Data Quality, without bias?
  • Is the concept / mathematical structure of the model well known and understood (e.g in literature)
  • How much Intrinsic Model Risk is there (alternative possible models, hidden assumptions)
  • Are there explicit quality requirements required before a model is accepted
  • Is there benchmarking with alternative models
  • Is there backtesting against historical data (when applicable)

Establish the Model Usage context