Susan Sneed, CFA is an analyst at a quantitative focused equity hedge fund. Sneed is required to perform backtests of the funds algorithm trading strategies. Sneed is told that one particular strategy appears to be overfitted. An overfitted model is best described as a

1. statistical model that contains more parameters than can be justified by the data
2. statistical model that cannot adequately capture the underlying structure of the data
3. statistical model that contains more observations than parameters