2016-FRR Exam Dumps | Which of the following statements are reasons for mathematical valuation and risk assessment models to

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Financial Risk and Regulation (FRR) Series
GARP.2016-FRR.v2024-09-09.q145
Question 22

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Question 22/145

Which of the following statements are reasons for mathematical valuation and risk assessment models to be misleading or inaccurate?
I. There could be missing factors in models.
II. The data used as input for the model could be bad or wrong.
III. Model results could be misinterpreted.
IV. There could be errors in the derivation of the model.

A. I, II, III IV

B. III and IV

C. I, II, and III

D. I, III, and IV

Correct Answer: A

Mathematical valuation and risk assessment models can be misleading or inaccurate for several reasons:
* Missing factors in models: Important variables or conditions might be overlooked.
* Bad or wrong data: Incorrect or poor-quality data input can lead to faulty outcomes.
* Misinterpretation of results: Users might not correctly understand or use the results.
* Errors in the derivation of the model: Mistakes in the mathematical formulation or assumptions can lead to errors.
All these factors contribute to the potential inaccuracy or misleading nature of such models.

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