Numerix has added automated model validation testing to its CrossAsset analytics platform, allowing users to automate previously manual processes, receive regular reports on the suitability of models in specific market conditions, and meet regulations that scrutinise the use of models and their governance.
The company’s solution for enterprise model risk management is called Numerix Model Validation Studio and is available immediately offering an automated testing environment that certifies the mathematical and financial correctness of pricing models. The company’s quantitative services group has also added validation and reporting services, formalising custom model validation services provided on an ad hoc basis and giving customers a choice of how they use Numerix’ model validation testing technology. Customers can subscribe to a managed service that provides quarterly model performance reports based on the use of Numerix models and is designed to show the suitability of models in particular market environments. Alternatively, they can use custom services offered by the Numerix quant team that are designed to report on both Numerix and third-party models, or they can license and implement the Numerix Model Validation Studio software as part of the company’s CrossAsset platform.
The automated model testing solution evolved from internal work at Numerix to ensure the accuracy of its own models, and with about 700 institutions using Numerix analytics, it is aimed at providing confidence in the performance, accuracy, usability and suitability of pricing models. It also plays into the model use and governance requirements of regulations including Basel III and Solvency II.
Steven O’Hanlon, CEO at Numerix, says the automated testing suite and model validation service is a natural extension of the company’s offering, and adds: “We have invested heavily in providing our clients with the transparency and testing required to ensure that as they use our analytics for business critical functions they have confidence in the performance of our models.”
The Numerix automated model validation platform supports testing of model performance on a daily basis against real markets, and includes nine tests for pricing models that cover mathematical, financial and implementation correctness. Investment in existing internal model validation to deliver a commercial solution includes development of a dashboard within the company’s model risk management framework that offers visibility of model performance and KPIs.
James Jockle, chief marketing officer and senior vice president at Numerix, expects initial users of the Model Validation Studio technology to be banks, with asset managers, hedge funds and insurance firms also taking an interest. He concludes: “Model validation is a pain point in the market. The Numerix automated platform can reduce the burden and time of running model validation processes, and provide better transparency and improved performance of trading operations.”