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Model Risk - In the Context of the Regulatory Climate Change
Model risk management plays a significant role in today's financial marketplace. Apart from other types of risk such as market risk and credit risk, model risk is the risk within a model indicating whether the model is incorrect or misused. The outcomes and reports based on the used model significantly influence the decision making process of any financial institutions or organizations regarding future events.
This article addresses model risk in financial domains involving risk management in the context of new regulations and requirements. We first review the major quantitative methods involved in risk forecasting and the two distinct approaches towards defining model risk: the value approach and the price approach. Then, we discuss model risk from regulatory and accounting perspectives, in light of the decisive roles of BCBS 239 and IFRS 9 and their associated challenges. We further discuss the recent regulatory developments on model risk management.
samae.bagheri 1394 Downloads 01.11.16

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