With the increasing use of complex quantitative models in applications throughout the financial world, model risk has become a major concern. Such risk is generated by the potential inaccuracy and inappropriate use of models in business applications, which can lead to substantial financial losses and reputational damage. In this paper, we deal with the management and measurement of model risk. First, a model risk framework is developed, adapting concepts such as risk appetite, monitoring, and mitigation to the particular case of model risk. The usefulness of such a framework for preventing losses associated with model risk is demonstrated through case studies. Second, we investigate the ways in which different ways of using and perceiving models within an organisation both lead to different model risks. We identify four distinct model cultures and argue that in conditions of deep model uncertainty, each of those cultures makes a valuable contribution to model risk governance. Thus, the space of legitimate challenges to models is expanded, such that, in addition to a technical critique, operational and commercial concerns are also addressed. Third, we discuss through the examples of proxy modelling, longevity risk, and investment advice, common methods and challenges for quantifying model risk. Difficulties arise in mapping model errors to actual financial impact. In the case of irreducible model uncertainty, it is necessary to employ a variety of measurement approaches, based on statistical inference, fitting multiple models, and stress and scenario analysis.

This abstract relates to the following paper: Aggarwal A., Beck M. B., Cann M., Ford T., Georgescu D., Morjaria N., Smith A., Taylor Y., Tsanakas A., Witts L., Ye I. Model risk – daring to open up the black box by the model risk working party ‐ Abstract of the London Discussion. British Actuarial Journal, doi: 10.1017/S1357321715000276.

Expert judgement has been used since the actuarial profession was founded. In the past, there has often been a lack of transparency regarding the use of expert judgement, even though those judgements could have a very significant impact on the outputs of calculations and the decisions made by organisations. The lack of transparency has a number of dimensions, including the nature of the underlying judgements, as well as the process used to derive those judgements. This paper aims to provide a practical framework regarding expert judgement processes, and how those processes may be validated. It includes a worked example illustrating how the process could be used for setting a particular assumption. It concludes with some suggested tools for use within expert judgement. Although primarily focussed on the insurance sector, the proposed process framework could be applied more widely without the need for significant changes.

This abstract relates to the following paper: AshcroftM., AustinR., BarnesK., MacDonaldD., MakinS., MorganS., TaylorR. and ScolleyP.. Expert judgement ‐ Abstract of the Edinburgh Discussion. British Actuarial Journal. doi: 10.1017/S1357321715000239.

This abstract relates to the following paper: Expert Judgement by Institute and Faculty of Actuaries-Solvency & Capital Management Working Party, Ashcroft. doi: 1500023.

This abstract relates to the following paper: Prof WilkieDavid, F.F.A., F.I.A.; Dr HareDavid, F.I.A.; SmithAndrew, Hon F.I.A. Celebrating the British Actuarial Journal’s 20th anniversary: looking at the next 20 years of actuarial research ‐ Abstract of the London Discussion. British Actuarial Journal.