Assessing Financial Model Risk
Risk Management
2013-07-11 v2
Abstract
Model risk has a huge impact on any risk measurement procedure and its quantification is therefore a crucial step. In this paper, we introduce three quantitative measures of model risk when choosing a particular reference model within a given class: the absolute measure of model risk, the relative measure of model risk and the local measure of model risk. Each of the measures has a specific purpose and so allows for flexibility. We illustrate the various notions by studying some relevant examples, so as to emphasize the practicability and tractability of our approach.
Cite
@article{arxiv.1307.0684,
title = {Assessing Financial Model Risk},
author = {Pauline Barrieu and Giacomo Scandolo},
journal= {arXiv preprint arXiv:1307.0684},
year = {2013}
}
Comments
23 pages, 6 figures