The Limitation Game - Understanding Model Risk

October 15, 2015


The Limitation Game - Understanding Model Risk

Mathematical models are essential tools for the effective management of financial and insurance risks, yet every model has some limitations. It is important to understand these limitations if models are to be used effectively. Indeed, what is considered a limitation is likely to differ from one application to the next.

In this paper we will:

  • look at why models have limitations
  • aid the reader in better identifying the sources of limitations
  • Assess which limitations are important
  • Aid the reader in better identifying the sources of limitations
  • Above all, define a strategy for dealing with them

These points will help in the management of model risk.

 

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