Replicated development dataset from raw files available in the general ledgers
Validation of data cleansing and preparation steps (e.g., validating imputation and transformation of data)
Routine checks in verifying the inclusion of data corresponding to full economic cycle, data relevancy
Validated the macroeconomic variables data from the internal repository which gets updated frequently
Validation of Key Aspects
Alternative approaches like contractual term, weighted average method using default/prepayment used to estimate the life of loan
Current default definition tested against the regulatory definition, underlying assumptions and role of senior management
Forecast horizon and macro-economic model forecast of reasonable and supportable forecast validated
Selection of Initial Pool of Variables
Variable selection process used in model development document and multi-collinearity validated
Assigned different significance levels for different variables and options to filter models with user-specified signs for different variables
Model Replication & Challenger Models
Replicated the entire variable selection process using information provided in the model development document
Verified the model coefficients along with the significance of the variables and verified the economic intuition of the sign of the variables chosen
Developed the challenger model using alternative approach/different variable
Independent Testing
Performed Model Fitting Tests, Coefficient Stability Analysis, Assumption Testing, Seasonality Check, Accuracy Tests of Model, Sensitivity and Scenario Analysis
Performed back-testing analysis between actual and predicted PDs and LGDs
Client Impact
Validation project completed on time and on budget.
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