Model risk is the risk that a model built for estimating a variable will produce erroneous estimates. Model risk is caused by a number of factors, including:
a) Misspecifying the model: For example, using a normal distribution when it is not justified.
b) Model misuse: For example, using a model built to estimate bond prices to estimate equity prices
c) Parameter estimation errors: In particular, parameters that are subjectively determined can be subject to significant parameter estimation errors
d) Programming errors: Errors in coding the model as part of computer implementation may not be detected by end users
e) Data errors: Errors in data used for building the model may also introduce model risk
Therefore the correct answer is d, as all the choices are a source of model risk.
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