Model Risk - From Epistemology to Management. Ipse se nihil scire id unum sciat. (Socrates' Plato)

Bertrand K. Hassani ()
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Bertrand K. Hassani: Grupo Santander et Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: One of the main concern and regulatory topic financial institutions have to deal with is the model risk. Senior managers tend to consider more and more model risk as one of the highest exposure a financial institution has (as illustrated by the latest EBA paper related to Advanced Measurement Approach (AMA) for Operational Risk Capital calculation). Though, while the concept seems relatively simple, the definition of the model risk (traditional and regulatory), the origins of this one (from dogmas to mis-use) and the way to manage it (from engineering conservatism into models to a proper governance process) are not necessarily well handled by practitioners, academics and regulators. Giving a clear definition and understanding the root cause of a model failure allows adopting the appropriate management style to deal with the potential issue that could lead to dramatic failures. In this paper we are proposing an analysis of the model risk trying to understand the main issues leading to the failure and the best way to address them

Keywords: Model Risk; Operational Risk; Risk Management, Risk Measurement; Epistemology (search for similar items in EconPapers)
JEL-codes: C60 G32 H12 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:15026

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