Assessing financial model risk

Barrieu, Pauline and Scandolo, Giacomo (2014) Assessing financial model risk. European Journal of Operational Research, 242 (2). pp. 546-556. ISSN 0377-2217

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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.

Item Type:	Article
Official URL:	http://www.sciencedirect.com/science/journal/03772...
Additional Information:	© 2014 Elsevier B.V
Library of Congress subject classification:	H Social Sciences > HG Finance
Sets:	Departments > Statistics Research centres and groups > Centre for the Analysis of Time Series (CATS) Research centres and groups > Risk and Stochastics Group
Funders:	STICERD, LSE
Date Deposited:	06 Nov 2014 12:26
URL:	http://eprints.lse.ac.uk/60084/

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