Related papers: Assessing Financial Model Risk

The risk of a financial position is usually summarized by a risk measure. As this risk measure has to be estimated from historical data, it is important to be able to verify and compare competing estimation procedures. In statistical…

Probability measures by themselves, are known to be inappropriate for modeling the dynamics of plain belief and their excessively strong measurability constraints make them unsuitable for some representational tasks, e.g. in the context of…

This article offers a 3-parameter model of testing, with 1) the difference between the ability level of the examinee and item difficulty; 2) the examinee discrimination and 3) the item discrimination as model parameters.

Since the quasiconvex risk measures is a bigger class than the well known convex risk measures, the study of quasiconvex risk measures makes sense especially in the financial markets with volatility. In this paper, we will study the…

Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…

We propose a distributional framework for benchmarking socio-technical risks of foundation models with quantified statistical significance. Our approach hinges on a new statistical relative testing based on first and second order stochastic…

We provide a constructive way of defining new elicitable risk measures that are characterised by a multiplicative scoring function. We show that depending on the choice of the scoring function's components, the resulting risk measure…

Many real-world situations of ethical and economic relevance, such as collective (in)action with respect to the climate crisis, involve not only diverse agents whose decisions interact in complicated ways, but also various forms of…

Since the introduction of risk-based solvency regulation, pro-cyclicality has been a subject of concerns from all market participants. Here, we lay down a methodology to evaluate the amount of pro-cyclicality in the way finnancial…

In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…

In the paper, we use and investigate copulas models to represent multivariate dependence in financial time series. We propose the algorithm of risk measure computation using copula models. Using the optimal mean-$CVaR$ portfolio we compute…

Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…

We propose a novel class of convex risk measures, based on the concept of the Fr\'echet mean, designed in order to handle uncertainty which arises from multiple information sources regarding the risk factors of interest. The proposed risk…

This paper presents a comprehensive overview of model validation practices and advancement in the banking industry based on the experience of managing Model Risk Management (MRM) since the inception of regulatory guidance SR11-7/OCC11-12…

Calibrating blackbox machine learning models to achieve risk control is crucial to ensure reliable decision-making. A rich line of literature has been studying how to calibrate a model so that its predictions satisfy explicit finite-sample…

In this paper the accuracy and robustness of quality measures for the assessment of machine learning models are investigated. The prediction quality of a machine learning model is evaluated model-independent based on a cross-validation…

The project managers who deal with risk management are often faced with the difficult task of determining the relative importance of the various sources of risk that affect the project. This prioritisation is crucial to direct management…

We introduce the formalism of generalized Fourier transforms in the context of risk management. We develop a general framework to efficiently compute the most popular risk measures, Value-at-Risk and Expected Shortfall (also known as…

Stratifying factors, like age and gender, can modify the effect of treatments and exposures on risk of a studied outcome. Several effect measures, including the relative risk, hazard ratio, odds ratio, and risk difference, can be used to…

Models necessarily capture only parts of a reality. Prediction models aim at capturing a future reality. In this paper we address the question of how the future is constructed (or: imagined) in an investment context where market…