Risk Model denotes any quantitative / mathematical approach to producing risk assessments / estimates for the purpose of risk management.
Any risk model is a fully realized artefact when the following components are in place
- A precise model description (all mathematical / conceptual elements) that allow the reproduction of a model
- A programming implementation (source code or other digital realization of the model
- A production instance of the implementation that is used in actual decision making / risk management activities
Risk models may be based on a variety of techniques from statistics and econometrics and may 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