We help our clients develop or validate
IRB, IFRS 9 and stress-testing models

CREDIT RISK

Methods, analytics and models used for: pricing, provisioning (IFRS 9 and CECL), stress-testing (EU and CCAR/DFAST) and economic/regulatory capital

Risk parameters: Probability of Default (PD), Exposure at Default (EAD/CCF/LEQ), Loss Given Default (LGD), Correlation and Dilution modelling

Portfolio models: loss distribution and securitisation modelling. Structured products’ pricing. Empirical calibration of assets' correlations (Vasicek framework)

For the asset classes: Securitization, Corporates (Large and SMEs), Banks and FIs, Sovereigns/Municipalities/PSEs, Specialized Lending (Aircraft, Shipping, Project, Commodity and Real Estate Finance), Private Banking, Retail, and Purchased Receivables

Trading book: adjustments to derivative contracts' valuations (CVA)

Development or independent-validation of models

We support our clients on the following topics:

REGULATION

Our regulation expertise encompasses a comprehensive understanding of the ever-evolving regulatory landscape. We navigate the complexities of compliance to ensure that clients’ businesses operate seamlessly within the bounds of financial industry regulations. Our team stays abreast of regulatory changes, offering strategic insights and tailored solutions.

DATA

At the heart of our consulting firm's operations is a dynamic team of adept data professionals. Before entering any modelisation process, our team knows how to build comprehensive and accurate datasets. This meticulous process lays the groundwork for robust analyses, setting the stage for modelisation and/or informed decision-making.

MODELLING

Our consulting firm gathers a skilled team of statistical engineers who apply cutting-edge methodologies to address credit risk. Our approach is anchored in the utilization of methodologies compliant with regulatory requirements, internal standards and industry's best practices.

REGULATION

1. Our regulation expertise encompasses a comprehensive understanding of the ever-evolving regulatory landscape. We navigate the complexities of compliance to ensure that clients’ businesses operate seamlessly within the bounds of financial industry regulations. Our team stays abreast of regulatory changes, offering strategic insights and tailored solutions.

2. Our expertise extends to key regulatory and accounting modelling requirements. We proactively interpret and integrate these frameworks into our strategies, leveraging our mastery to offer clients a competitive edge in an increasingly regulated market. By staying at the forefront of regulatory developments and by integrating this knowledge into our services, we empower our clients not only to meet current compliance standards but also to anticipate and adapt to future regulatory shifts.

Each mission starts with in-depth analysis of open recommendations, internal and external regulatory standards relevant to our modelling scope.

DATA

1. At the heart of our consulting firm's operations is a dynamic team of adept data professionals. Before entering any modelisation process, our team knows how to build comprehensive and accurate datasets. This meticulous process lays the groundwork for robust analyses, setting the stage for modelisation and/or informed decision-making.

2. We recognize the pivotal role of data (internal and external) – which must reliable and cost-effective over the complete life cycle of our models.

3. Our commitment to data integrity continues into the cleaning phase, where our skilled professionals meticulously identify and rectify anomalies, ensuring that the data is fit for purpose. By adhering to industry-leading practices, we guarantee the quality and consistency of the information, providing a solid foundation for subsequent analyses and modelling.

MODELLING

1. Our consulting firm gathers a highly skilled team of statistical engineers who apply cutting-edge methodologies to address credit risk. Our approach is anchored in the utilization of regulatory methodologies, ensuring compliance with regulations, internal standards and best practices.

2. Moreover, we leverage state-of-the-art quantitative methods, incorporating advanced techniques such as machine learning into our modelling projects. By combining regulatory frameworks with innovative modelling strategies, our team strives to provide comprehensive insights into credit risk quantification, offering our clients innovative solutions.

This expertise enables us to deliver fit for purpose solutions that not only meet regulatory requirements but also empower businesses to navigate credit risk effectively.

*Main programming languages used

Use Case

IRB-repair of a Financial-Institutions rating system

Context and scope:

As part of an IRB-repair program, Neon Risk has been selected by a top-tier French banking group (first line of defense modelling team) to remediate its financial institutions rating system. This rating system covers counterparties such as: banks, insurers, funds, and other non-bank financial institutions (incl. independent asset managers and brokers).

Challenges:

This banking/trading book segment is a Low Default Portfolio (LDP), necessitating the use of specific statistical methods both for the risk differentiation and quantification. Expert judgment is very key in such project. And benchmarking capabilities are required for initial validation.

Success Factors:

Strong implication of sponsors

Clear scoping of expectations and roadmap with sufficient buffers

Early identification of core group of relevant stakeholders and experts

Specification of historical datasets with experts, post inventory of IRB-repair requirements

Development of a complete statistical workflow enabling data visualization, coverage and representativeness analyses, multinomial regression (and machine learning challenger models), combinatory analyses to retain the most discriminant risk drivers (cf. cost of use and maintenance), performance and stability tests

A strong benchmarking capability (towards rating agencies and dedicated benchmarking solutions)

Continuous, constructive and transparent information of the independent validation team (to anticipate red flags)

This project highlights our dedication to advancing credit risk modelling practices within the framework of regulatory compliance, ensuring performance and cost-effectiveness of our models.

We help our clients develop or validate IRB, IFRS 9 and stress-testing models

CREDIT RISK

REGULATION

DATA

MODELLING

Use Case

IRB-repair of a Financial-Institutions rating system

Success Factors:

We help our clients develop or validate
IRB, IFRS 9 and stress-testing models