Okuzeka
Finance & Banking vocabulary · Risk Management

Model risk

Meaning in finance & banking, with examples

nounAdvanced term

In finance & banking, model risk means: The risk of adverse consequences from incorrect models or inappropriate use of their outputs.

In Turkish: model riski

How it is used

Discuss assumptions, data and intended use; a mathematically correct model can still be misapplied.

Example sentences

  1. Using a normal-market model during a crisis increased model risk.

    The model's intended conditions may not match its actual use.

  2. Independent validation identified model risk from an outdated default dataset.

    Weak input data can undermine otherwise sound calculations.

Common collocations

  • model risk management
  • assess model risk
  • risk assessmentThe process of identifying possible risks, estimating how likely they are and how much harm they could cause, and deciding how to manage them.
  • stress testAn analysis that checks whether a bank would have enough capital and liquidity to survive a severe but possible shock, such as a deep recession.

More terms: Risk Management

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This page explains English vocabulary for learners. It is not financial advice.