In theory, a poor model should be quickly discovered and either eliminated or tweaked so that it delivers more accurate prices. However, for various reasons, including intellectual arrogance and in some cases a crooked desire to book fictitious profits, this does not always occur.
A recent report entitled Model validation best practices: Achieving value-added from research consultancy Celent, now part of the Oliver Wyman group, suggests the implementation of a framework that will help ensure models perform as they should and actually add, rather than subtract, value.
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