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Independent Model Validation ensures robust model risk management by providing effective challenge to Eurex Clearing’s risk models.
Eurex Clearing uses models to support key risk management processes, including margining, default fund sizing, stress testing, liquidity risk management and economic capital assessments. These models are central to the safe and resilient operation of Eurex Clearing as a trusted central counterparty.
Eurex Clearing recognizes that the integrity of these models is fundamental to maintaining the confidence of clearing members, their clients, regulators, and the broader marketplace served by Eurex Clearing. Through its regular activities, Model Validation ensures that the models are fit for purpose and model risks are identified, assessed, and managed. This supports informed decision making, operational resilience, and the integrity of the clearing ecosystem overall, helping to create trust and confidence in the markets of today and tomorrow.
Eurex Clearing has an established Model Risk Management Policy, which is owned and maintained by Model Validation. The function ensures that the policy remains robust and aligned with applicable regulatory requirements and supervisory expectations through regular updates. In addition, Model Validation promotes the consistent application of the Model Risk Management Policy and oversees the adherence to sound model risk management practices across all stages of the model lifecycle.
The Model Validation team at Eurex Clearing is an independent second-line function within the Risk Management Department. The Head of Model Validation reports to Eurex Clearing’s Chief Risk Officer and additionally has a dotted reporting line to the Chair of the Supervisory Board of Eurex Clearing that further reinforces the independence of the function. Model Validation’s activities are codified in a dedicated Model Validation Framework establishing a consistent, risk-based approach for the independent assessment of models throughout their lifecycle.
Validation activities cover model inputs, model processing, model performance as well as the use of model outputs. These model aspects are assessed via a suite of validation instruments, covering both quantitative and qualitative assessments such as conceptual soundness reviews, backtesting, and sensitivity analysis.
Continuous model monitoring is performed to identify emerging risks, assess new products and evolving market conditions, and manage ongoing model risk exposures. These assessments provide ongoing insight into model performance and changes in model risk over time and enable effective model risk steering at Eurex Clearing.