Model Usage

From Open Risk Manual


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


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