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Discriminatory power

A model's ability to distinguish observations with different outcomes or risk levels. Common measures depend on the model and use case and must be interpreted alongside calibration, stability, and business consequences.

Last updated: Last reviewed by: Model Risk Directory editorial team

How the term is used in model risk management

A model's ability to distinguish observations with different outcomes or risk levels. Common measures depend on the model and use case and must be interpreted alongside calibration, stability, and business consequences. The exact implementation varies by institution, model type, risk rating, and governing framework. Use the linked regulatory pages and buyer guides below for scope-specific requirements.

Related glossary terms

CalibrationBacktestingProbability of default

Guides and frameworks that use this term

GuideModel Risk ValidationModel risk validation is the independent testing of a specific model's conceptual soundness, ongoing performance, and outcomes, performed by staff or a third-party firm genuinely separate from that model's development. It is the 'effective challenge' function required under SR 26-2 and SR 11-7, distinct from broader model risk management program design.FrameworkHKMA CA-G-4HKMA CA-G-4 sets validation expectations for internal-ratings-based credit-risk systems used by authorized institutions. The current 2025 version covers governance, data, model design, quantitative and qualitative validation, use tests, stress testing, overrides, validation frequency, independence, findings, and supervisory review. It is model-specific rather than an enterprise-wide MRM standard.