Regulatory and internal model validation services from CompatibL
Identification of modellable risk factors
- For a risk factor to be classified as “modellable”, it should have a history of “real” prices.
- To be considered modellable, a risk factor should have at least 24 observations per year, with a maximum period of one month between two consecutive transactions.
- Price is considered to be real if:
- It is a price at which the institution has transacted on an arms-length basis.
- It is a price for an actual transaction between two other (independent) third parties.
- The price is taken from a firm (transactable) quote.