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Models are an inevitable feature of modern finance, and model risk is inherent in the use of models. In this article we stress the technical elements of model risk. Models are susceptible to errors: from incorrect assumptions about price dynamics and market interactions, from implementing a model wrongly, from inaccurate estimation of volatilities and correlations and other inputs that are not directly observable and must be forecasted. We also discuss how to mitigate model risk.

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The purpose of this study was to determine the accuracy of scores obtained from the Dumont/Faro short-form in identifying children who score in the gifted range on the complete administration of the WISC-III. The findings showed that of the 29 children identified as gifted based on their WISC-III Full Scale scores, 20 children were correctly identified as gifted, and the 9 others were identified as potentially gifted, when the short-form was employed. Moreover, only 5 of the 129 children who were identified as not gifted according to their full Scale scores were misidentified as gifted according to the short-form. In general these results suggest that, because of the brief nature of the short-form, use of this form in place of the complete WISC-III administration could reduce, by nearly half, the amount of time normally devoted to screening for giftedness. Step-by-step recommendations for employing the short-form are provided