Häner Consulting

Model Validation

The Client's Requirements

A tier 1 Swiss investment bank was concerned, that the pricing models for their FX products may not appropriately reflect the book's skewness and kurtosis risk. The concern was raised, as for single positions some significant model sensitivity could be observed.

Our Solution

We implemented benchmark pricing models for all vanilla and exotic FX products in the book and re-priced the book, which consisted of a six figure number of trades. The analysis revealed, that the trader's assessment, that the book as a whole was not sensitive to the modeling assumptions, was correct.

The Client's Benefits

We could provide to the client information on model risk, which was not based only on the analysis of some sample trades, but which was referring to the actual book and hence to the actual risk the institution incurred.

The Client's Requirements

The head of Market Risk of a leading Nordic bank asked us to improve the development process for internal risk models and introduce best practices.

Our Solution

We defined for the client a model development framework consisting of principes, policy, process and procedures.

The Client's Benefits

The development process for internal models has been made more efficient and predictable by introducing automtated tests and quality metric reports and is now compliant to regulatory and internal audit requirements.