Parameter risk

{
  "id": "MLC-T-INS-002486",
  "term": "Parameter risk",
  "field": "Insurance and risk management",
  "definition": "The risk that the parameters used in a model, such as those for pricing or reserving, are inaccurate or change over time, leading to incorrect estimations of future losses or liabilities. This risk is particularly relevant in catastrophe modeling or long-tail lines of business where historical data may not fully predict future events. It differs from basis risk, which relates to the mismatch between a hedge and the underlying exposure.",
  "url": "https://mlchart.com/terminology/insurance/parameter-risk/"
}