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Model Validation March 7, 2007

Posted by riskopedia in Basel II, EAD, LGD, Model Validation, PD, Retail Risk.

After all these years of Basel II, and all the talks around various methodologies. Finally there is a regconition of Model validation in the press. Sometime this year, there will be a launch of “The Journal of Risk Model Validation”, you can go to this link http://www.journalofriskmodelvalidation.com/ to find out more.

At the moment, most of the financial institutions used external validators such as various consultancy firms (e.g. Experian Scorex, FICO, Moody’s, S&P etc.) and the big 4 (KPMG, EY, PWC, Deloitte). Seemed like they don’t really have a lot of investment in internal validations. Main reason usually the company sees the “internal” thing is costly and not benefit driven. However, I think the institutions under-estimated the “internal” part and over-estimated the “external” part, for the following: (more…)

APRA 20% LGD floor Cont… March 7, 2007

Posted by riskopedia in Basel II, LGD, Retail Risk.
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There is another article I have found

Again, similar para. on P.8 “Loss-given-default Loss-given-default (LGD) in the proposed MER model is based on the long-run average LGD of 20 per cent reported by LMIs, across all LVR buckets, from 1980 to 2000. Consistent with economic intuition, the proposed model allows LGD to vary with LVR. This increases the model’s sensitivity to risk compared with the current model, which has a flat LGD across all LVR buckets.”

Regardless of what results we have in MER model, I have couple of comments: (more…)

Reassign location on SAS “WORK” folder March 6, 2007

Posted by riskopedia in SAS.

Have you ever ran into problems that your harddrive is not big enough to run your temporary dataset? Or you are running a big job and wanted to use your external harddrive instead? (more…)

APRA 20% LGD floor March 6, 2007

Posted by riskopedia in Basel II, LGD, Retail Risk.
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Been reading an interesting article in Ozrisk blog
“APRA increases the cost of home loans – again”. With those risk people in the Aussie/Nz area, this shoudn’t come as a surprise when most banks are still finalising the model methodologies and outcomes.

Here is my gut feel of how APRA came to 20%: (more…)