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Blame the models

Danielsson, Jon (2008) Blame the models. Journal of Financial Stability, 4 (4). pp. 321-328. ISSN 1572-3089

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Abstract

The quality of statistical risk models is much lower than often assumed. Such models are useful for measuring the risk of frequent small events, such as in internal risk management, but not for systemically important events. Unfortunately, it is common to see unrealistic demands placed on risk models. Having a number representing risk seems to be more important than having a number which is correct. Here, it is demonstrated that even in what may be the easiest and most reliable modeling exercise, value-at-risk forecasts from the most commonly used risk models provide very inconsistent results.

Item Type: Article
Official URL: http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information: © 2008 Elsevier B.V.
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Departments > Finance
Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 08 Feb 2011 10:22
URL: http://eprints.lse.ac.uk/32250/

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