Model Risk Management: Limits and Future of Bayesian Approaches

Jean-Pierre Florens, Christian Gouriéroux and Alain Monfort
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Jean-Pierre Florens: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Christian Gouriéroux: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This paper discusses the use of Bayesian approaches when the models are misspecified (model risk). In particular we explore the limits and future of Bayesian approaches in order to provide answers to the following questions recently asked by the prudential supervision for Finance/Insurance: How to measure model risk? How to use in a coherent way the different misspecified models (as rating models) usually employed within and between financial institutions.

Keywords: Model Risk; Bayesian Approach; Model Choice; Validation (search for similar items in EconPapers)
Date: 2019-12
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Citations: View citations in EconPapers (1)

Published in Annals of Economics and Statistics, 2019, 136, pp.1-26. ⟨10.15609/annaeconstat2009.136.0001⟩

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Journal Article: Model Risk Management: Limits and Future of Bayesian Approaches (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02952910

DOI: 10.15609/annaeconstat2009.136.0001

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