What Are the Main Risks Associated with Using “Unconfirmed” Data in Financial Models?

The main risks of using unconfirmed data, such as an unconfirmed transaction or an unexecuted derivative order, in financial models are uncertainty, potential invalidation, and double-counting. An unconfirmed transaction can be replaced by RBF or simply never confirmed, invalidating any model that assumed its finality.

Similarly, unexecuted orders can be canceled or expire. Models based on such data risk significant errors in liquidity, exposure, or net position calculations.