Explanation:
In the context of model risk management (such as guided by SR 11-7), a model is defined as a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates. While qualitative methods are sometimes used to adjust or complement models, the core definition centers on the application of quantitative approaches to forecast results.
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Q.71 A risk manager at a bank is presenting to the board of directors about model risk management. He starts his presentation by defining a model. Which one of the following is the correct definition of a model in the context of risk management in the modern day today?
A
A tool used for forecasting based on complex statistical techniques
B
A tool used for forecasting based on qualitative techniques
C
A tool that applies quantitative approaches to forecast results
D
A tool used for forecasting based on both quantitative and qualitative methods
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