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Quantitative Model Validation

Enhancing Risk


Pricing Controls

The validation of complex pricing models is a key control within the trading function of any financial organisation

A US Investment Banking client engaged Calimere Point to validate their derivatives pricing models across FX, interest rates and equity derivatives portfolios. We were able to bring our deep quantitative financial markets experience to provide our client with independent validation of the specific models used and the associated assumptions which drove the valuation of their portfolio.

The Importance of Model Validation

Model validation is a critical step in the risk management process for financial institutions. It involves the rigorous assessment of mathematical models used to evaluate financial instruments, ensuring they are accurate, reliable, and compliant with regulatory standards.

Financial Services: Investment Banking


Navigating the Complexities: A Comprehensive Model Validation Challenge for a Diverse Investment Portfolio

The investment bank faced a complex challenge in the form of model validation. Their portfolios spanned diverse asset classes, each with its unique complexities and risk factors. To ensure accurate pricing and risk assessment, they needed to validate their quantitative models comprehensively.

Data Solution

Developing the Validation Methodology

Our client wanted us to provide insight into the generally accepted market practices for valuing these financial instruments and not restrict the validation to a purely academic exercise.

We discussed the valuation principles for each product type, as well as market standards and conventions, to enable the client to decide what models to use as the base case for each product type.

Regression tests were designed and implemented for each product, including drill-downs into their vanilla components, to ensure that the valuation and risk numbers could be systematically checked with multiple cross-checks.

Delivering the Validation: enhancing client's quantitative strategies and transparency

We successfully worked with our client’s quant teams to validate and improve the modelling approach to bring the models into line with standard market conventions

We provided comprehensive documentation for the products and models, including synopses that could be directly forwarded to clients who wanted an understanding of the valuation and risk calculation procedure.

Where appropriate, model shortcomings were documented and proposals were provided to address the issues.


Revolutionising Model Validation for Investment Banks

As financial markets continue to evolve, the importance of rigorous model validation remains paramount in ensuring financial stability and success.

Expert Data Analytics in Model Validation

This US Investment Bank leveraged our data analytics expertise to validate valuation models across diverse portfolios, ultimately enhancing risk management, regulatory compliance, and stakeholder confidence.

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