Validation of the backtesting process under the targeted review of internal models: practical recommendations for probability of default models

IF 0.4 4区 经济学 Q4 BUSINESS, FINANCE Journal of Risk Model Validation Pub Date : 2019-05-16 DOI:10.21314/JRMV.2019.203
Lukasz Prorokowski
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引用次数: 1

Abstract

This paper provides practical recommendations for the validation of the backtesting process under the targeted review of internal models (TRIM). It advises on the introductory steps for validating the backtesting process and reviews the available statistical tests for calibration, discrimination and stability backtesting. The TRIM regulatory exercise is an international supervisory initiative that inspects the internal models and related internal risk and governance policies of eurozone banks that are permitted to use the advanced internal risk-based (AIRB) approach. Under the TRIM guidelines, the designated banks should have specific policies and internal guidelines for the validation of the backtesting process. Further, the affected banks are required to validate the entire backtesting process. Addressing these needs, this paper serves as a basis for producing such policies and utilizing appropriate statistical tools for validating the backtesting process. The paper focusses on probability of default models. To date, no academic study has discussed the validation of the backtesting process with reference to the TRIM rules.
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在有针对性地审查内部模型的情况下验证回溯测试过程:关于默认模型概率的实用建议
本文为内部模型目标评审(TRIM)下的回测过程验证提供了实用建议。它就验证回测过程的介绍性步骤提供咨询意见,并审查用于校准、判别和稳定性回测的现有统计测试。TRIM监管活动是一项国际监管举措,旨在检查获准使用先进的基于内部风险(AIRB)方法的欧元区银行的内部模型以及相关的内部风险和治理政策。根据TRIM指引,指定银行应为验证回测过程制定具体政策和内部指引。此外,受影响的银行必须验证整个回测过程。针对这些需求,本文作为制定此类政策和利用适当的统计工具来验证回测过程的基础。本文主要研究违约模型的概率问题。到目前为止,还没有学术研究讨论了参考TRIM规则的回测过程的验证。
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来源期刊
CiteScore
1.20
自引率
28.60%
发文量
8
期刊介绍: As monetary institutions rely greatly on economic and financial models for a wide array of applications, model validation has become progressively inventive within the field of risk. The Journal of Risk Model Validation focuses on the implementation and validation of risk models, and aims to provide a greater understanding of key issues including the empirical evaluation of existing models, pitfalls in model validation and the development of new methods. We also publish papers on back-testing. Our main field of application is in credit risk modelling but we are happy to consider any issues of risk model validation for any financial asset class. The Journal of Risk Model Validation considers submissions in the form of research papers on topics including, but not limited to: Empirical model evaluation studies Backtesting studies Stress-testing studies New methods of model validation/backtesting/stress-testing Best practices in model development, deployment, production and maintenance Pitfalls in model validation techniques (all types of risk, forecasting, pricing and rating)
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