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Model Risk Training Course

This practical course will offer advanced-level insights into the nature and manifestation of model risk, identify the implications for misidentifying or neglecting model risk. The exploration of some practical examples will highlight how an apparently well-behaved model can behave very differently under different conditions and the consequences can be catastrophic.


Learning Objectives
At the end of the course participants will be able to:

  • Identify the main sources of model risk
  • Explain the potential consequences of neglecting model risk
  • Assess the impact of model risk on various instruments in the banking book or trading book
  • Be aware of Basel II's consideration of model risk and its relevance to Pillar 2 of the new Basel Accord
  • Acknowledge the importance of model testing
  • Identify processes to limit (if not entirely eliminate) model risk
  • Assess the role of senior managers in managing model risk
  • Identify procedures for vetting and reviewing models
  • Acknowledge the function of an independent risk oversight (IRO) unit.

Who Should Attend

  • Strategic Business Development professionals
  • Risk department staff
  • Regulatory department staff
  • Internal Auditors

Classroom lectures and intensive hands-on practical workshop sessions including up-to-date case studies.

Knowledge Pre-Requisites
Working knowledge of Microsoft Excel
Very basic working knowledge of visual basic macros in Microsoft Excel.

Course Content
Session 1: Introduction to risk

  • Model risk defined
  • Sources of model risk
  • Challenges involved with quantifying model risk
  • Methods for estimating model risk, given an unknown component from a financial model
  • Case Study/Exercise: Chaos, space shuttle Challenger, Mars probe

Session 2: Introduction to model risk

  • Ways risk managers can protect against model risk
  • Role of senior managers in managing model risk
  • Procedures for vetting and reviewing a model
  • Function of an independent risk oversight (IRO) unit
  • Case Study/Exercise: Barings, LTCM, Amaranth,

Session 3: Model building – how and why

  • How does one go about constructing a model?
  • Simple examples
  • What do most of use to construct models? Why is it not the best medium?
  • Given that excel is here to stay, what can be done to mitigate model risk?
  • Where are the excel pitfalls? Random number generator, for example

Session 4: The importance of second pairs of eyes - validation

  • How does one go about validating models?
  • Simple examples
  • What are the processes involved in validation
  • Stress and scenario testing
  • The importance of oversight

State of the art facilities
Delegates can study in our comfortable hi-tech learning environment in London, near Liverpool Street Station.

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Model Risk

Course Venue: London EC2