Preventing wrong decisions

Author: Fons Vrouenraths - Team Lead Valuation & Market Risk Model Validation

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23 December 2020

'The dealing room is the beating heart of ABN AMRO. This is where we trade on the financial markets for our clients, where we manage the bank's funding, treasury and trading positions and where we hedge risks. Models play a crucial role in decision-making and risk management, but they are also inherently risky. This is because they apply statistical, economic, financial and mathematical theories that require the use of assumptions in order to estimate reality. It is up to our team to minimise the model risk and prevent incorrect decisions from being made based on model errors.'

Fons Vrouenraths studied Applied Physics in Delft. He began his career as a trainee at AFM. 'Part of that traineeship was a one-month internship at one of the supervised organisations. For me, that was ABN AMRO. The commercial dynamics, facilitated by an enormous amount of complex models, made a huge impression on me. The environment perfectly matched my quantitative background and where I wanted to work.'

Model risk

So it happened and at the end of his traineeship, Fons transferred to ABN AMRO, taking up the position of Risk Analyst. Now, he is the Team Lead of Valuation & Market Risk Model Validation.  'Detecting model risks is not an easy task. It requires good mathematical skills, knowledge of regulations as well as an understanding of the various banking processes. You need to understand how models are used in order to find out whether the outcomes follow the logic in practice.

If you notice any mistakes, this almost always leads to hefty discussions. Model makers also have professional pride and are not easily convinced that they are wrong. Although we occupy an independent position within the bank, you need to be bold enough to have that discussion. It also helps if you understand their business and can translate the complexity of a model into practical daily actions. One of my team members recently discovered a mistake in a model. He only managed to get the users' hands on it after he had come up with an example that could be reproduced on the back of a napkin.'

Intellectually challenged

'Working within Model Validation puts you into contact with all aspects of banking. You contribute to the success of very specific products and services as well as to underpinning the bank's strategic decisions. If you want to be intellectually challenged in such an environment and you are looking for unlimited growth opportunities from your quantitative background, we would like to get in touch with you.

Author: Fons Vrouenraths - Team Lead Valuation & Market Risk Model Validation

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