In today’s video blog, Dr. David Eliezer, Vice President and Head of Model Validation at Numerix sits down with CMO, Jim Jockle to discuss the increased importance of model validation. Jim and David discuss the primary regulatory and market drivers impacting the resurgence of model validation; and touch on a number of issues, including the importance of transparency and the five key components that comprise the validation process for derivatives. David also expands upon model implementation focusing on best practices to address fundamental model issues.
Watch the Video: Pricing Model Validation – Regulation & Best Practices
Jim Jockle (Host): Hi welcome to Numerix Video Blog, I’m your host Jim Jockle. Joining me today, Dr. David Eliezer, Vice President of Model Validation here at Numerix. David how are you?
David Eliezer (Guest): I’m okay. How are you Jim?
Jockle: Thank you for joining us. Following up on Model Validation – the oversight an area which you’re in charge of. Really has come back into the limelight yet again. We’ve seen some significant trading loses into the market. New reflections on pricing models. And even as early as this past August, further guidance from the OCC, as it relates to the supervisory observations and guidance around model validation, building off the 2004 directive of MiFID and the CRD directive in 2006.
One of the key elements that I really want to dive into around validation is around this concept of what is transparency? Can you give us a solid definition, when it comes to pricing models, how would you define transparency?