Dr. Yogesh MalhotraRESEARCHWall Street Quant: Big-3 Finance-IT LeaderResearch Impact among Nobel LaureatesPrinceton Quant Trading PresentationsVentures:
[Digital Transformation Pioneer] [AI, Algorithms & Machine Learning] [Computational Quant Finance] [FinTech: 'Rethinking Finance'] [CyberSecurity Risk Engineering]

2015 & 2016 Princeton Quant Trading Conference: Sponsors: Goldman Sachs, Citadel, SIG, KCG Holdings.,
2008: AACSB: Model Risk Management Research Impact among Nobel Laureates such as Black-Scholes.

*Research Impact *Beyond 'Prediction' *Future of Finance *Beyond VaR *Model Risk Management *Future of Risk *Cyber Risk *SSRN *Google Scholar *Publications
*Projects *Goldman Sachs *JP Morgan *Wall Street Hedge Funds *Princeton Presentations *Model Risk Arbitrage *Cyber Finance *Cyber Risk Insurance *Quantum Crypto
*Bayesian vs. VaR *Markov Chain Monte Carlo *Wireless Mobile Trust Models *VoIP Pen Testing Frameworks *Bitcoin Cryptanalytics *NFS Cryptanalytics Algorithms

Federal Reserve/OCC Model Risk Management Guidance SR11-7/OCC 2011-12
Regulators & Wall Street CEOs, CFOs & CROs Catch Up with Model Risk Management Research
"Dr. Yogesh Malhotra's research published years before the Global Financial Crisis of 2008 underscored imperative need for preempting and preventing systemic failures through 'anticipation of surprise' by effective challenge of Information Systems based 'predictive' risk management models. In the aftermath of the Financial Crisis, more than a decade later, top Wall Street investment banks and their financial regulators are increasingly cognizant about the importance of 'anticipation of surprise' by effective challenge of Information Systems based 'predictive' risk management models such as underscored in Federal Reserve/OCC Model Risk Guidance SR11-7/OCC 2011-12."

* 20 Years of Computational Quantitative Analytics Leading the Industry Leaders.
* See our Model Risk Management (MRM) Research Program and Download Research.
* See the Federal Reserve/OCC Model Risk Management Guidance SR11-7/OCC 2011-12.
* Global Footprint of Our Research in Worldwide Firms, Governments, Institutions.
* Sample of Worldís Largest Firms, Governments, & Organizations Applying our Research.
  Computational Quantitative Analytics…
* Risk Models: Statistics, Finance, Econometrics, Accountancy, IT, OR, Computer Sc., Telecom, …
* Risk Management & Controls: ERM, MRM, FRM, Assets, Markets, Exchanges, Networks, Strategy, …

This site should help you parse perhaps the most important standard that your organization needs to comply with as required by the US Federal Reserve and OCC. The specific guidance is about Model Risk Management (MRM). It is often called SR11-7 and OCC 2011-12. Click on respective hyperlinks to see the specific standards.

Wall Street CEOs, CFOs, and CROs are recently saying: "We must anticipate risk!"

They are also expected to establish a process of "effective challenge of models"?
What is exactly 'anticipation of risk'? How do CEOs, CFOs, and CROs really 'do' so?
What exactly is 'effective challenge of models'? How do CxOs really 'do' so?
When top Finance CEOs and OCC say 'models are backward-looking' and 'future isnít the past'? What does that really mean? What are its implications for your enterprise? When top Finance CFOs say that their metric of success is 'no surprises', what do they really mean? When Basel guidance says that models stress testing requires 'anticipating risk' what does it really mean? When Fed and OCC Model Risk guidance emphasize 'corporate culture', 'incentives', and 'influence' for appropriate "effective challenge" of models, what does that really mean? How can CxOs really 'do' so?

What is the ‘Human Factor’ often attributed for large scale systems failures such as after the Global Financial Crisis and 80%-90% failure rates of BPR?
Devoid of the Human Factor, BPR was characterized as 'the fad that forgot people'! Recent observations of world's most respected Finance Quants and Model Risk Management Pioneers such as Emanuel Derman and Paul Wilmott seem to rhyme with what we saw with BPR in the early-1990s.

How do you understand MRM (Model Risk Management) in the context of ERM (Enterprise Risk Management), SRM (Strategic Risk Management), and SyRM (Systemic Risk Management)? How do you integrate your Quantitative Analytics, Modeling, Risk Management, and other business processes within a coherent Dynamic Information Strategy, Risk Management & Controls Framework, and, IT Enterprise Architecture? How do People, Processes, and, Technologies interact to influence and determine Business Performance?

Now all those answers that you always sought but could not find are available in one coherent framework: here! Learn from world's greatest national and corporate leaders who have been doing so for a long time... We have learned from them and they have learnt from us. Not only have they applied what they learned very successfully, they have also shared about our research with worldwide audiences in their national constitutions, world policy documents, corporate strategy papers, industry interviews and keynotes, and, best-selling books.

Now read on the text below and the links interspersed in related text to see how we have been parsing Model Risk Management (MRM) standards SR11-7 and OCC 2011-12 coming from 20 years of Quantitative Analytics research focus originally grounded in Quantitative Risk Management and Controls Systems & Models. The linked documents are illustrative in nature. For greater grasp for execution of the 'anticipation of risk', 'effective challenge of models', and myriad of other activities related to Risk Management and Controls Systems & Models, you are welcome to apply our Model Risk Management Research Program maintained in public domain as a service to the worldwide communities of researchers and practitioners.

"Models by their nature are simplifications of reality, and real-world events may prove those simplifications inappropriate. This is even more of a concern if a model is used outside the environment for which it was designed. Banks may do this intentionally as they apply existing models to new products or markets, or inadvertently as market conditions or customer behavior changes. Decision makers need to understand the limitations of a model to avoid using it in ways that are not consistent with the original intent."

-- SR11-7/OCC 2011-12: Supervisory Guidance On Model Risk Management: Board of Governors of the Federal Reserve System & Office of the Comptroller of the Currency, April 4, 2011

US Federal Reserve System

"The new business model of the Information Age, however, is marked by fundamental, not incremental, change. Businesses can't plan long-term; instead, they must shift to a more flexible "anticipation-of-surprise" model."

-- Yogesh Malhotra in CIO Magazine interview, September 15, 1999.

CIO Magazine

"Bank losses in the recent financial crisis exceed levels observed in recent history! This illustrates the inherent limitations of backward looking models - we must anticipate risk."
-- Jacobs, M. Stress Testing Credit Risk Portfolios, U.S. Office of the Comptroller of the Currency, March 2012.
Office of the Comptroller of the Currency

"I'd just caution you that models are backward-looking. The future isn’t the past."
-- Jamie Dimon, Chairman & CEO, JP Morgan Chase & Co., US Senate Banking Committee hearing, June 13, 2012.

JP Morgan

"A guiding principle for managing model risk is "effective challenge" of models, that is, critical analysis by objective, informed parties who can identify model limitations and assumptions and produce appropriate changes. Effective challenge depends on a combination of incentives, competence, and influence. Incentives to provide effective challenge to models are stronger when there is greater separation of that challenge from the model development process and when challenge is supported by well-designed compensation practices and corporate culture." MORE...

-- OCC 2011-12: Supervisory Guidance On Model Risk Management: Board of Governors of the Federal Reserve System & Office of the Comptroller of the Currency, April 4, 2011

US Federal Reserve System

"The very essence of what various IT systems can do in the context of KM begins and ends with people and processes. In absence of motivation and commitment on the part of the users, such systems cannot function."

-- Yogesh Malhotra in CIO Insight interview, July 1, 2004. MORE...

CIO Magazine

"Our metric of success is ‘no surprises’: no surprises in terms of the impact on the firm of any individual behaviour or outside event."
-- Barry Zubrow, Chief Risk Officer at JP Morgan Chase,quoted in: Bank Risk Manager of the Year: JP Morgan, Risk Magazine, 10 Jan 2012.

JP Morgan
"Stress testing means (regular) expeditions into an unknown, but important territory: the land of unexpected events and losses. It requires anticipating risk which could, but need not arise in the future and results in the determination of possible unexpected losses."
-- Engelmann, B. and Rauhmeier, R., The Basel II Risk Parameters: Estimation, Validation, Stress Testing - with Applications to Loan Risk Management, Springer, 2011.
CIO Magazine
"A guiding principle throughout the guidance is that managing model risk involves "effective challenge" of models: critical analysis by objective, informed parties that can identify model limitations and produce appropriate changes."
-- SR 11-7, Supervisory Guidance on Model Risk Management, U.S. Board Of Governors of the Federal Reserve System & Office of the Comptroller of the Currency, April 4, 2011
Office of the Comptroller of the Currency

"We at the NAIC, along with our fellow financial regulators at the federal and global levels, must evolve and improve the way we supervise our markets. We must continue our ongoing efforts to develop better structures and tools to help us anticipate risk."
-- National Association of Insurance Commissioners. Examining the Impact of the Proposed Rules To Implement Basel III Capital Standards, National Association of Insurance Commissioners Testimony to the U.S. House of Representatives, November 29, 2012

JP Morgan

2015-2017: 41 SSRN Top-10 Research Rankings: Top-10% SSRN Authors:
AI & Decision Modeling; Algorithms & Machine Learning:
SSRN Top-10 Research Ranking Categories:
• Capital Markets,
• Cognition in Mathematics, Science, & Technology,
• Computational Biology,
• Computational Techniques,
• Computing Technologies,
• Corporate Governance: Disclosure, Internal Control, & Risk-Management,
• Cyberlaw,
• Decision-Making under Risk & Uncertainty,
• Econometric & Statistical Methods,
• Econometric Modeling,
• Econometrics,
• Hedging & Derivatives,
• Information Systems & Economics,
• Interorganizational Networks & Organizational Behavior,
• Mathematical Methods & Programming,
• Microeconomics,
• Operations Research,
• Risk Management,
• Risk Management Controls,
• Risk Modeling,
• Social Network Analysis,
• Stochastic Models,
• Systemic Risk,
• Telecommunications & Network Models,
• Uncertainty & Risk Modeling,
• VaR Value-at-Risk.
Other Categories:
• Banking & Insurance
• Cultural Anthropology,
• Economics of Networks,
• Innovation Law & Policy,
• Mutual Funds, Hedge Funds, & Investment Industry,
• Sociology of Innovation

Recent Research Presentations and Research Reports
*Princeton University Presentations on the Future of Finance: 'Rethinking Finance' for Era of Global Networked Digital Finance.
*2016 Princeton Quant Trading Conference Invited Research Presentation: Beyond Stochastic Models to Non-Deterministic Methods.
*2015 Princeton Quant Trading Conference Invited Research Presentation: Beyond Risk Modeling to Knightian Uncertainty Management.
*Beyond 'Bayesian vs. VaR' Dilemma to Empirical Model Risk Management: How to Manage Risk (After Risk Management Has Failed).
*Markov Chain Monte Carlo Models, Gibbs Sampling, & Metropolis Algorithm for High-Dimensionality Complex Stochastic Problems.
*Risk, Uncertainty, and Profit for the Cyber Era: 'Knight Reconsidered': Model Risk Management of Cyber Risk Insurance Models.
*Cybersecurity & Cyber-Finance Risk Management: Strategies, Tactics, Operations, &, Intelligence: ERM to Model Risk Management.
*Number Field Sieve Cryptanalysis Algorithms for Most Efficient Prime Factorization on Composites: Beyond Shannon's Maxim.
* Bitcoin Protocol & Bitcoin Block Chain: Model of 'Cryptographic Proof' Based Global Crypto-Currency & Electronic Payments System.
*2015-2016 40 SSRN Top-10 Research Rankings for Computational Quantitative & Risk Analytics Algorithms Machine Learning Research.
* 2008 AACSB International Impact of Research Report: Named among Black-Scholes, Markowitz, Sharpe, Modigliani & Miller

Top Wall Street Investment Banks Quantitative Finance Projects & FinTech Ventures
Princeton: Future of Finance: 'Rethinking Finance' for Era of Global Networked Digital Finance
2016 Princeton Quant Trading Conference: Invited Research Presentation: Model Risk Arbitrage
2015 Princeton Quant Trading Conference: Invited Research Presentations: Future of Finance
Quantitative Finance Risk Analytics Modeling Wall Street Investment Banks & VC Projects
Model Risk Management: Risk Management Analytics from 'Prediction' to 'Anticipation of Risk'
Quantitative Finance Risk Analytics, Econometric Analytics, Numerical Programming Models
Quantitative Finance Model Risk Management for Systemic-Tail Risks in Cyber Risk Insurance
JP Morgan Portfolio Optimization, VaR & Stress Testing: 17-Asset Class Portfolio
JP Morgan Portfolio Liquidity Risk Modeling Framework for $500-600Bn Portfolio
Bayesian VaR Beyond Value-At-Risk (VaR) Model Risks Exposed by Global Financial Crisis
Goldman Sachs Alumnus Asset Manager Large-Scale Data High Freq Econometric Models
Quantitative Finance, Risk Modeling, Econometric Modeling, Numerical Programming
Technologies of Computational Quantitative Finance & Risk Analytics and Risk Management
Algorithms & Computational Finance: C++, SAS, Java, Machine Learning, Signal Processing
Cybersecurity, Financial Protocols & Networks Protocols Analysis, and, Penetration Testing
Quantitative Finance, Quantitative Risk Analytics & Risk Management Projects Impact
Digital Social Enterprise Ventures Creating Trillion $ Practices for Hundreds of Millions

Named among FinTech Finance & IT Nobel laureates for Real World Impact of Research
FinTech Innovations: Model Risk Arbitrage, Open Systems Finance, Cyber Finance, Cyber Insurance
AACSB International Reports Impact of Research among Black-Scholes, Markowitz, Sharpe
Research Impact Recognized among Finance & Information Technology Nobel laureates
40 SSRN Top-10 Rankings: Computational Quant Analytics: Algorithms, Methods & Models
FinTech Innovations: Model Risk Arbitrage, Cyber Finance, Cyber Risk Insurance Modeling
Computational Quantitative Finance Modeling & Risk Management Research Publications
Model Risk Management of Cyber Risk Insurance Models & Quantitative Finance Analytics
Thesis on Ongoing Convergence of Financial Risk Management & Cyber Risk Management
U.S. Federal Reserve & Office of the Comptroller of the Currency Model Risk Guidance
Bayesian VaR Beyond Value-At-Risk (VaR) Model Risks Exposed by Global Financial Crisis
Markov Chain Monte Carlo Models & Algorithms to Enable Bayesian Inference Modeling
OCC Notes Cybersecurity Risk & Cyber Attacks as Key Contributor to Banks' Financial Risk
Future of Bitcoin & Statistical Probabilistic Quantitative Methods: Global Financial Regulation
Models Validation Expert Panels: IT, Operations Research, Economics, Computer Science

Global, National, & Enterprise CxO Level FinTech-Cyber-Risk Analytics Ventures
CxO Think Tank that pioneered 'Digital' Management of Risk, Uncertainty, & Complexity
CxO Consulting: Global, National & Corporate Risk Management Practices Leadership
CxO Guidance: Cyber Defense & Finance-IT-Risk Management: Uncertainty & Risk
CxO Keynotes: Conference Board, Silicon Valley, UN, World Economy: Uncertainty & Risk
The Future of Finance Project Leading Quantitative Finance Practices at Elite Conferences
The Griffiss Cyberspace Cybersecurity Venture Spans Wall Street and Hi-Tech Research
UN Quantitative Economics Expert Paper & Keynote on Global Economists Expert Panel
National Science Foundation Cybersecurity & Cybercomputing National Expert Panels
Digital Social Enterprise Innovation Ventures Pioneering the Future of Risk and Quant
Global Footprint of Worldwide World-Leading CxO Risk Management Ventures & Practices