Climate change has intensified water risk events, threatening water security for societies and ecosystems. Although current water risk models focus on geophysical and business-related effects, they do not quantify the monetary dimensions of water-related challenges and opportunities. This study aims to address this gap by exploring the objectives and directions for modeling water risk in finance. We identify requirements for adequately modeling financial water risk, assess existing water risk approaches in finance, outline their benefits and shortcomings, and develop directions for future modeling. Recognizing the interplay between climate and water as well as the systemic dimension of water risk, we emphasize the need for forward-looking, diversification-based, and mitigation-adjusted modeling approaches.