Assessing Financial Model Risk

Pauline Barrieu and Giacomo Scandolo ()

Papers from arXiv.org

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.

Date: 2013-07, Revised 2013-07
New Economics Papers: this item is included in nep-rmg
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Journal Article: Assessing financial model risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1307.0684

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