Verification of Financial Models
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1. The document discusses the verification of financial models to ensure their correctness and correspondence to real-life situations. This involves checking the model assumptions, implementation, and calibration. 2. Examples of model applications that require verification include technical analysis, derivatives pricing, risk measurement, and trading algorithms. Verification methods include backtesting on historical data and simulating specific market conditions. 3. Verification is important as it can find errors in a model or its implementation, help prevent financial disasters, and ensure efforts are not duplicated but provide additional value.
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