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ERM Glossary: Model parameter risk

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This is a type of model risk and is the risk that although our model is actually intrinsically sound, we feed it the wrong input parameters. This can occur for a variety of reasons. For example, the relevant parameters may be hard to estimate accurately (or we may use inappropriate ways to estimate them). There may also be misunderstandings regarding what inputs the model needs on the part of users (who will often not be the same individuals as those who have selected the model or those who have constructed it).

 


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