# Quantitative Risk Model

From Open Risk Manual

## Definition

**Quantitative Risk Model** denotes any quantitative (mathematical) tool that aims to produce systematic risk assessments / estimates for the purpose of Risk Management.

## Components

A quantitative risk model is a fully realized artefact when - minimally - the following components / artefacts are in place

- A precise Model Specification with all mathematical / conceptual elements that allow for understanding and reproduction (implementation) of a model by competent professionals
- A programmed implementation (Model Implementation) (source code or other digital realization of the model) that realizes the concept articulated in the model specification
- A
*production instance*of the implementation that is used in actual decision making / risk management activities

In practice there may be more components (documentation of data sources, test implementations, model families, different types of instances etc.)

## Techniques

Quantitative risk models may be based on a large variety of techniques from statistics, econometrics (data science) and may further draw on aspects of financial or economic theory.

## Issues and Challenges

- Over-reliance on quantitative approaches for decision making
- Model Risk is significant risk factor, in particular with more complex risk models