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How are Risk Models developed? What are the outputs from a risk model?

How are Risk Models developed? What are the outputs from a risk model?

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Risk models are indicators of potential risks invoved in a process and use statistical techniques to predict the likelihood of an event, thus helping the decision making process.

The development part of the risk model comprises of obtaining information about a binary outcome and predictor variables of an event. The risk model relates to the risk of happening of an event in an individual case to the set of predictors with use of logistic regression model.

The regression coefficients are used to fit the risk model which in turn can prepare the risk score for an individual case that predicts the likelihood of occurance of an event.

The risk model provides an indication of likelihood of an event in a particular case, thus helps in vital decision making. These decisions can be related to an investment, determining an insurance premium, going ahead with a critical surgery etc.

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