EXTENDED RANGE MODEL RISK RATING

摘要

Apparatus and methods for model risk rating are provided. Model risk rating may include rating models on a scale of low potential risk, medium potential risk, high or critical potential risk. Model risk rating may include performing an assessment of model-application pairs. The assessment may include evaluating model complexity, application complexity, materiality of model use and model limitations and uncertainties. The model limitations and uncertainties may be weighted by severity. Mitigations to a model limitation may be taken into account. Apparatus and methods allow for aggregating model risk scores. A ranking of models may be determined based on the model risk scores. Scoring thresholds may be defined based on criteria of inherent potential risk, potential risk of financial losses and severity of model limitations. Based on these thresholds, each model may be classified as low potential risk, medium potential risk, high or critical potential risk.

主权项

1. An article of manufacture comprising a non-transitory computer usable medium having computer readable program code embodied therein, the code when executed by one or more processors configures a computer to execute a method for determining a potential exposure associated with a model-application pair (“(m,a)”), the method comprising:
calculating a complexity (“CM”) of the model (“M”); calculating a complexity (“CA”) of the application (“A”); calculating an exposure (“e(m,a)”) of the model-application pair; applying a normalizing function to the exposure to obtain a normalized exposure (“n(e(m,a))”); if applying the normalizing function distorts the exposure by a distortion level less than a threshold distortion, calculating a raw risk score corresponding to CM*CA*n(e(m,a)); if the normalizing function distorts the exposure by a distortion level greater than the threshold distortion:
applying an extended range normalizing function (“EXTn(e(m,a))”) to the exposure; andcalculating a raw risk score corresponding to CM*CA*EXTn(e(m,a)).