Credit Risk PD Model Validation

Learn the PD Model Validation from Scratch for Retail Portfolio Compliant with Regulatory Guidelines (IRB). In this session, we will cover real-time challenges that a model validator encounters throughout the PD validation lifecycle. From initial data inspection—ensuring quality, completeness, and alignment with regulatory default definitions—to segmentation validation, we assess the granularity and homogeneity of risk pools. We will review the modeling methodology in depth, ensuring the approach is statistically sound and interpretable, and validate the use of predictive variables using stability metrics like PSI and VIF. Emphasis will be placed on conducting performance testing (Gini, AUC, KS), calibration checks using statistical backtesting techniques (e.g., binomial, Clopper-Pearson), and verifying long-run average default alignment. Additionally, we will discuss how to build a challenger model, challenge the existing methodology, and perform backtesting and override analysis. The session will conclude with an overview of governance documentation, validation reporting, and how to ensure IRB-compliant model monitoring frameworks are in place.