Goldman Sachs 2015 Annual Report Download - page 124

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Model Risk Management
Overview
Model risk is the potential for adverse consequences from
decisions made based on model outputs that may be
incorrect or used inappropriately. We rely on quantitative
models across our business activities primarily to value
certain financial assets and liabilities, to monitor and
manage our risk, and to measure and monitor our
regulatory capital.
Our model risk management framework is managed
through a governance structure and risk management
controls, which encompass standards designed to ensure we
maintain a comprehensive model inventory, including risk
assessment and classification, sound model development
practices, independent review and model-specific usage
controls. The Firmwide Risk Committee and the Firmwide
Model Risk Control Committee oversee our model risk
management framework. Model Risk Management, which
is independent of model developers, model owners and
model users, reports to our chief risk officer, is responsible
for identifying and reporting significant risks associated
with models, and provides periodic updates to senior
management, risk committees and the Risk Committee of
the Board.
Model Review and Validation
Model Risk Management consists of quantitative
professionals who perform an independent review,
validation and approval of our models. This review
includes an analysis of the model documentation,
independent testing, an assessment of the appropriateness
of the methodology used, and verification of compliance
with model development and implementation standards.
Model Risk Management reviews all existing models on an
annual basis, as well as new models or significant changes
to models.
The model validation process incorporates a review of
models and trade and risk parameters across a broad range
of scenarios (including extreme conditions) in order to
critically evaluate and verify:
‰The model’s conceptual soundness, including the
reasonableness of model assumptions, and suitability for
intended use;
‰The testing strategy utilized by the model developers to
ensure that the models function as intended;
‰The suitability of the calculation techniques incorporated
in the model;
‰The model’s accuracy in reflecting the characteristics of
the related product and its significant risks;
‰The model’s consistency with models for similar
products; and
‰The model’s sensitivity to input parameters and
assumptions.
See “Critical Accounting Policies — Fair Value — Review
of Valuation Models,” “Liquidity Risk Management,”
“Market Risk Management,” “Credit Risk Management”
and “Operational Risk Management” for further
information about our use of models within these areas.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk
are set forth under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations —
Overview and Structure of Risk Management” in Part II,
Item 7 of the 2015 Form 10-K.
112 Goldman Sachs 2015 Form 10-K