Definition ∞ Model evaluation is the process of assessing how well a predictive algorithm or analytical model performs its intended task. This involves comparing the model’s outputs against actual observed data using various statistical metrics and performance indicators to determine its accuracy, reliability, and generalization capabilities. In financial technology, robust model evaluation ensures that trading algorithms, risk assessment tools, or fraud detection systems yield dependable results. Consistent assessment is vital for maintaining system integrity and preventing costly errors.
Context ∞ In the realm of crypto and digital assets, model evaluation is increasingly important for validating the efficacy of AI-driven trading strategies, market prediction tools, and security analytics. News often discusses the challenges of evaluating models in highly volatile or novel markets, where historical data may not be fully representative. Proper evaluation practices are critical for building trust in automated financial systems and informing investment decisions.