Rating System Validation

  • Perform ongoing model validation after deployment
  • Refer to Basel Commitee Working Paper 14 for PD validation criteria, but perform additional LGD and CCF validation
  • Check three types of criteria
    • Stability
    • Ranking Power
    • Calibration
  • Check for trend over time
  • Perform a comparison of internal vs external ratings (Benchmarking)
  • Also consider
    • validation at model development time
    • data validation (Level 0 Validation)
    • use test
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