| Description |
To briefly summarize programs objectives, the program is designed to clarify the model risk issues implied by the following comment:
“ … a man drowned crossing a stream with an average depth of six inches.”
If the implications of these comments may not seem straight forward at first, but they are at the root of the use of inappropriate and/ or misspecified models, model implementation errors, missing risk factors, data viability issues, spurious risk indicator/factor estimation, and other modeling dilemmas. Such issues were faced by market practitioners and in part, contributed to the extreme stresses in the global markets during late 2008 and early to mid 2009, which arose from the US sub prime lending excesses of the early 2000s, the leveraged shadow banking securitization crisis of the mid-2000s, and the subsequent credit crunch of the third-quarter of 2008. Given the above comment and its implications, the following insightful comments on risk measurement describe the situations that this program is designed to address:
“Measurements are not to provide number, but insight,”
“All models are wrong, but some are useful,”
“It takes maturity to know what [risk] models are to be used, but never
believed.”
These insights lead to the following comment, which describes the
program’s objectives and focus:
“If it can be measured, it can be managed.”
Given these comments, the objective of this program is to present a framework for developing this sufficient level of maturity or sophistication for identifying, measuring and modeling key risk indicators/factors in uncertainty future environments and incorporating these estimated factors in risk measurement models at business unit and to present an approach that allows framing these results at the enterprise-wide level across the entire organization.
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