Model Usage
From Open Risk Manual
Definition
Model Usage denotes the precise manner in which Model Outputs are translated into business actions.
Usage can be either in the form of automated / unsupervised action or instead produce signals / metrics which are to be evaluated by humans before any action is taken
Examples
Mode usage can take many distinct forms:
- yes/no decisions in accepting or proposing a risk/transaction
- direct input into pricing decisions
- direct input into hedging decisions
- input into setting of limits
- internal and / or regulatory capital calculation
Model usage includes the use of Overrides, re-calibrations or any other model adjustment mechanisms that may intermediate and modify the model output before final action.
Issues and Challenges
- Comprehensive documentation of all important uses of a model can be lacking in Model Documentation because once models are in place users may not follow strict Model Governance
