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Rethinking the Modeling Ecosystem: A Modest Proposal

EXECUTIVE SUMMARY For banks in many countries the current model development and validation process is broken: it takes too long, there are too many nonstandard elements, there is too much rework, and it introduces material risk (“model risk risk”, if you will) when critical and time-sensitive models fail validation. It also costs an exorbitant amount relative to the benefit it provides to shareholders. In our experience, the major challenges underlying this are threefold: Developers must create an entire evaluation framework of analyses, stats tests, and assumptions under which to evaluate models before they can begin modeling Developers and validators focus ...

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