An independent Model Validation providing effective challenge for Eurex Clearing’s risk models is essential for robust risk management. Our comprehensive Model Validation Framework with strong governance ensures effective identification of potential model risks related to models used at Eurex Clearing AG.
As a second line of defense function in Risk Management, Model Validation plays a central role in identifying and managing model risks. Model Validation directly reports to the Chief Risk Officer (CRO) of Eurex Clearing, ensuring independence from other areas of risk management (e.g. model development). Additionally and further strengthening the functions independence, Model Validation has an alternative reporting line to the Chair of the Supervisory Board of Eurex Clearing.
Model Validation uses several validation tools and instruments to effectively challenge and assess whether models are adequate for their intended use. Validations are performed regularly and ad-hoc if required e.g. before a new model or model change is implemented.
The models in scope of Model Validation are defined by the Model Risk Management Policy. These models comprise Margin models, Credit & Liquidity Stress Testing or Collateral Haircut models for example. Each model that is important for the CCP is in the spotlight of the Model Validation Team.
To validate the proper functioning of these models, Model Validation defines and executes both qualitative and quantitative examinations. Examples for quantitative examinations are backtesting, sensitivity testing or scenario analysis and determine whether model parameters, assumptions and model performance are adequate.
