Security market indices are primarily used as proxies for asset classes in asset allocation models. This is because they provide a benchmark for the performance of a specific asset class, aiding in the construction and evaluation of diversified portfolios.

• Option A is incorrect: Nonsystematic risk is specific to individual assets or industries and can be mitigated through diversification. Security market indices, being broad and diversified, do not serve as proxies for nonsystematic risk.

• Option C is incorrect: Asset-based valuation models are used to value individual companies by estimating the fair value of their assets and liabilities. A broad security market index is not a suitable proxy for such valuations.

Thus, the correct answer is B, as indices are critical in asset allocation for representing asset classes.