Business analytics model risk (part 4 of 5): categorizing model risk
Following from article 3 of 5 on Business Analytics Model Risk
Model risk cannot easily be spoken of as a singular entity. The topic is complicated in that there are multiple ways of categorizing model risk. As well, schemes for categorizing model risk are rarely mutually exclusive. While we can easily categorize different types and aspects of model risk, it is difficult to propose exclusive categories. Aspects of model risk tend to easily overlap, co-occur, or co-vary.
At the outset of this series, a categorization of contributing factors to model complexity was proposed. Complexity is one type of categorization scheme for a particular type of model risk. Below two more are offered which are likely more useful in segmenting and thus controlling model risk: I) model core attributes, and II)…
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