For more details related to the model risk AVA, please read the following paper from the European Bank Authorities, with a more specific focus on the article 11 of this document:
“Where institutions are unable to use the approach defined in paragraph 3, they shall apply an expert based approach to estimate the model risk AVA. The expert based approach shall consider all of the following: complexity of products relevant to the model; diversity of possible mathematical approaches and model parameters (where those model parameters are not related to market variables); the degree to which the market for relevant products is one way; the existence of unhedgeable risks in relevant products; and the adequacy of the model in capturing the behaviour of the pay-off of the products in the portfolio. Institutions shall notify competent authorities of the models for which this approach is applied, and the methodology used to determine the AVA.”
Please read the YIELDS flyer: Yields_brochure_GMS
A dedicated white paper describing a business case on a complex pricer will follow shortly.