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November 14, 2023

Saving Internal Capital Models

In today's risk management scene, some major European banks are seriously thinking about ditching their in-house models for regulatory capital requirements, according to the latest scoop from┬á┬ámagazine. Using internal models instead of standardized ones typically means you require less capital. But here's the catch: regulators want the valuation models used by both the front office and risk management to align.…
November 7, 2023

Model Explainability

When discussing AI for risk modeling, the topic of model explainability inevitably arises. Traditional simulation-based risk models provide transparency because you can examine the underlying assumptions and equations being used. On the other hand, neural networks are often seen as less transparent due to the millions of weights encoding their learning, which obscure an intuitive understanding of their behavior. However,…
October 17, 2023

Both Faster AND More Accurate

It's great to see regulators keeping up with this rapidly changing landscape. This week's OSC report gives a great overview of the current state but we do want to call out a misconception that has made its way into the report. Footnote 11 states: "... achieving the same level of accuracy as conventional simulation-based pricing models is not feasible when…