A new approach to assessing model risk in high dimensions

Carole Bernard and Steven Vanduffel ()

Journal of Banking & Finance, 2015, vol. 58, issue C, 166-178

Abstract: A central problem for regulators and risk managers concerns the risk assessment of an aggregate portfolio defined as the sum of d individual dependent risks Xi. This problem is mainly a numerical issue once the joint distribution of X1,X2,…,Xd is fully specified. Unfortunately, while the marginal distributions of the risks Xi are often known, their interaction (dependence) is usually either unknown or only partially known, implying that any risk assessment of the portfolio is subject to model uncertainty.

Keywords: Model risk; VaR; Rearrangement Algorithm; Tail dependence; Outlier detection; Minimum variance portfolio; Credit risk management (search for similar items in EconPapers)
JEL-codes: C35 C52 C60 G28 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:58:y:2015:i:c:p:166-178

DOI: 10.1016/j.jbankfin.2015.03.007

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