What is Model risk in FRM Part 1?

The risk of adverse outcomes from incorrect models, bad assumptions or data, implementation errors, or use outside a model’s valid domain. Good governance treats model choice, calibration, validation, limitations, and human override as distinct controls.

Model risk

FRM Part 1 glossary · Foundations Of Risk Management

Definition

The risk of adverse outcomes from incorrect models, bad assumptions or data, implementation errors, or use outside a model’s valid domain.

Model risk in plain English

Good governance treats model choice, calibration, validation, limitations, and human override as distinct controls.

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Operational risk
Machine learning

Related FRM Part 1 terms

Alpha
Arbitrage Pricing Theory (APT)
Beta
Capital Asset Pricing Model (CAPM)
Diversification
Economic capital
Enterprise Risk Management (ERM)
Information ratio
Jensen's alpha
Modern portfolio theory (MPT)

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