There is a case to consider MRM as **integrated part of business strategy rather than from a regulatory compliance perspective alone**

- The
**SR11-07 guideline**(2011) refers to a model 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 - Broader scope encompasses model development, implementation and use as well as governance and controls related to models (not only model validation)
- Care should be taken that policies are clear and unambiguous
- An action plan should be laid for addressing any of the gaps
**Under documentation of models prevents the institutionalization**of knowledge, which is the biggest risk banks face since the knowledge of the model moves with the modeler- An
**inventory should capture complete metadata**about a model (**owner, risk of the model, dates of the model build and reviews, implementation date, information on all the assumptions, linked models and products**)

#### Sources of model risk (unsystematic)

##### Model errors

- Mathematical errors, approximations or assumptions that are misleading or inappropriate

##### Data errors

- Missing or incomplete, duplicated data
- Inaccurate data
- Outdated data
- Asynchronous data
- Misinterpreted data
- Need to be able to trace data lineage (where does it come from, who owns it, costs of making changes)
- Data model dependencies

##### Implementation errors

- Model translation into framework
- Errors in the code

##### Usage errors

- Usage of the model instead of another one because it returns better results

#### Financial modeler’s manifesto

- by E. Derman and P. Willmott, 2009
- I will remember that I didn’t make the world, and it doesn’t satisfy my equations
- Though I will use models boldly toe simulate value, I will not be overly impressed by mathematics
- I will never sacrifice reality for elegance without explaining why I have done so
- Nor will I give the people who use my model false comfort about its accuracy. Instead
**I will make explicit its assumptions and oversights** - I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension