PARAMETERS THAT AFFECT THE ECONOMIC CAPITAL

There are a large number of parameters that can affect a model’s output. They fall into three main groups:

  1. 1.pre-modelling parameters, that is items that are completely independent of the model being used;
  2. 2.parameters relating to the modelling of the qualitative data, that is the modelling of the subjective non-financial data such as that relating to risks, controls and scenarios;
  3. 3.parameters relating to the capital model.

In addition, and as part of good governance, it is common to have a change authority relating to the parameters. This is because the parameters detailed below can result in significant capital movements and should therefore be within the normal governance structures relating ...

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