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  • Exam Code: MD-100
  • Exam Name: Windows 10
  • Version: V12.35
  • Q & A: 78 Questions and Answers

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NEW QUESTION: 1
Which of the following is a cause of model risk in risk management?
A. Programming errors
B. Misspecification of the model
C. All of the above
D. Incorrect parameter estimation
Answer: C
Explanation:
Explanation
Model risk is the risk that a model built for estimating a variable will produce erroneous estimates. Model risk is caused by a number of factors, including:
a) Misspecifying the model: For example, using a normal distribution when it is not justified.
b) Model misuse: For example, using a model built to estimate bond prices to estimate equity prices c) Parameter estimation errors: In particular, parameters that are subjectively determined can be subject to significant parameter estimation errors d) Programming errors: Errors in coding the model as part of computer implementation may not be detected by end users e) Data errors: Errors in data used for building the model may also introduce model risk Therefore the correct answer is d, as all the choices are a source of model risk.

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