Related papers: Measures of Model Risk in Continuous-time Finance …

Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…

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…

The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…

Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…

During the last decade Levy processes with jumps have received increasing popularity for modelling market behaviour for both derviative pricing and risk management purposes. Chan et al. (2009) introduced the use of empirical likelihood…

The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…

This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…

Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…

Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…

This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different…

The present article deals with intra-horizon risk in models with jumps. Our general understanding of intra-horizon risk is along the lines of the approach taken in Boudoukh, Richardson, Stanton and Whitelaw (2004), Rossello (2008),…

We propose to interpret distribution model risk as sensitivity of expected loss to changes in the risk factor distribution, and to measure the distribution model risk of a portfolio by the maximum expected loss over a set of plausible…

There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…

This paper examines the precision of estimators of Quantile-Based Risk Measures (Value at Risk, Expected Shortfall, Spectral Risk Measures). It first addresses the question of how to estimate the precision of these estimators, and proposes…

Randomness in financial markets requires modern and robust multivariate models of risk measures. This paper proposes a new approach for modeling multivariate risk measures under Wasserstein barycenters of probability measures supported on…

Model uncertainty has been one prominent issue both in the theory of risk measures and in practice such as financial risk management and regulation. Motivated by this observation, in this paper, we take a new perspective to describe the…

Portfolio selection in the periodic investment of securities modeled by a multivariate Merton model with dependent jumps is considered. The optimization framework is designed to maximize expected terminal wealth when portfolio risk is…

This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…

The pricing of options in exponential Levy models amounts to the computation of expectations of functionals of Levy processes. In many situations, Monte-Carlo methods are used. However, the simulation of a Levy process with infinite Levy…

We present a general framework for measuring the liquidity risk. The theoretical framework defines a class of risk measures that incorporate the liquidity risk into the standard risk measures. We consider a one-period risk measurement…