Efficient Pricing Engines Are Also Fit For Better Pricing Model Validation

Dangerous biases can creep into decisions even in fields that are assessed as strictly technical. Questions that decision makers in investment and risk management should ask themselves beyond the usual risk - managing model & method risk. Measuring model uncertainties special teams will have delved more deeply into the analysis than the decision maker has time to. Questions, like the following might help

  • have people making the recommendations fallen in love with special models and methodologies
  • were there dissenting results from various approaches and models?
  • could the recommendations be overly influenced by salient analogies?
  • have credible model and method alternatives be considered?
  • do you know where the numbers came from?
If decision makers can manipulate data, models and parameters in real time they might raise additional questions back to the team. To validate (or discard) much more models, blazingly fast solvers and powerful hardware is indispensable.