Model versus Algorithm

Model versus Algorithm

An Algorithm in Risk Management context is a precise (well defined and finite) quantitative procedure for solving a mathematical problem (possibly in a number of steps). It uses inputs, possible parameters or hyperparameters and produces intermediate or final numerical outcomes.

A Model is a quantitative (mathematical) framework (which may also adopt qualitative or hybrid elements) that aims to produce a coherent description about a system or situation and its possible future development. A model may employ one or more algorithms.

Issues and Challenges

• The term model is frequently used also in the context of a Data Model. A data model has no algorithmic component but may have implicity assumptions and representations about the nature of the system that is being captured in data.