Model Risk

As the use of models in finance grows ever more ubiquitous to assist with everything from decision-making around regulatory compliance, to risk and liquidity management, investing, hedging and pricing to performance optimisation, model risk has become a bigger challenge. Model risk is the financial, operational and regulatory risk institutions face as a result of model errors that throw out incorrect outputs or because of the use of models for purposes for which they were not intended. Model Risk Management (MRM) is now a vital operational component utilised by financial institutions world-wide. Banking supervisors now test for model risk.