Risk Dynamics provides model risk management, model validation, and risk modelling services

We offer dedicated experts, global regulatory knowledge, proprietary tools and frameworks, effective model testing/challenge methods, and state-of-the-art approaches to help our central counterparty clearing (CCP) clients identify and effectively manage model risks

What do we do?

Risk Dynamics helps CCP clients to establish and build on best practices in risk management. We ensure that risk models align with internal and regulatory requirements and objectives, and we help set up robust, comprehensive model risk governance so that CCPs can remain resilient under various market conditions. We also convene annual roundtables where industry experts, regulators, and our customers can discuss trending topics.

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Our Impact

In our 15 years of serving leading CCPs on model-related topics, we have gained extensive experience and expertise in initial margin (IM) models and valuation models, liquidity risk frameworks, stress testing, and collateral haircut models. We have reviewed numerous models and model types, effectively challenged models, advised on model risk management frameworks, and helped to align clients’ risk management practices with industry best practices.

Case studies

  • Reviewing a liquidity-based risk framework

    To meet daily cash-flow requirements, a North American client uses liquidity as a risk framework, with the aim of maintaining sufficient liquidity in all relevant currencies.

    To help this company meet its objective, we performed a framework review in which we assessed the client’s strategy, policy, governance, methodology, compliance, and reporting. In doing so, we helped this client to ensure that their liquidity resources could withstand the minimum stress requirements mandated by current regulations.

  • End-to-end review and challenge of stress-testing model

    A European client’s stress-testing model had expanded gradually over time, but the company’s model-change tracker and governance had not sufficiently evolved to reflect the expansion. The model had been validated annually in a piecemeal fashion, with a focus on incremental changes only.

    Risk Dynamics performed an end-to-end review of the model, identified all documentation gaps, outlined all expert judgments that were not clearly noted, assessed and challenged the model’s methodology, and reviewed the model’s governance and monitoring procedures to ensure compliance with internal and regulatory policies.

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