Model Usage
From Open Risk Manual
Definition
Model Usage denotes the precise manner in which Model Outputs are translated into business actions. It is the context into a certian model is put to use.
Usage Modes
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
