# Model Calibration

From Open Risk Manual

## Definition

**Model Calibration** refers to an essential component of the Model Development process, whereby available data or Expert Judgement are used to fit free parameters or other aspects of a given Risk Model.

- The term Model Calibration is also used in the context of choosing a confidence level, scaling parameter or any other choices required to transform risk model outputs in specific actionable metrics.
- The term
*Model Fit*or Model Estimation is closely related when the underlying model is purely statistical

## Examples

- We calibrated our credit score ranges to the internal ratings scale
- We calibrated our new interest rate model to swap and swaption data
- We calibrated our risk limits to the 99% confidence level output of the new VaR system