Model calibration is necessary to ensure that models are suitable to support business and risk decisions. Institutions must ensure that model calibration is based on relevant data that represents appropriately the characteristics and the drivers of the portfolio subject to modelling. This also applies to decisions to override or adjust inputs, coefficients and/or variables. Calibration choices must be fully documented and their assessment must also form part of the validation process. Models should be re-calibrated when deemed necessary, based on explicit numerical indicators and pre-established limits.
6.9.2
The choice of calibration requires judgement and must be closely linked to the objective of each model. In particular, the time period employed for calibration must be carefully justified depending on model types. Pricing models should be accurate. Provision models should be accurate with a degree of conservatism and should reflect the current and future economic conditions. Capital models should be conservative and reflect long term trends. Stress testing models should focus on extreme economic conditions.