CHAPTER TWELVEChecking for and Fixing Modeling Errors

So far, this book has focused on learning to design and build models. However, it would be incomplete without a chapter that discusses checking for errors. As illustrated in the case studies presented in this book, financial models are often used to assist in decision making (for example, whether to invest or not, whether to sell or not to sell, and so on). These decisions typically involve large sums of money, and it is extremely important that the model be free from errors. For this reason, it is always safer to assume that models contain errors, and the question is how to minimize the chances of errors occurring in your model.

Errors can be grouped into two categories: those that have an ...

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