Model Risk

Michel Crouhy; Dan Galai; Robert Mark

doi:10.1002/9780470061596.risk0385

Model Risk

Michel Crouhy
, Dan Galai
, Robert Mark

BA Business Department

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

Abstract

Models are an inevitable feature of modern finance, and model risk is inherent in the use of models. In this article we stress the technical elements of model risk. Models are susceptible to errors: from incorrect assumptions about price dynamics and market interactions, from implementing a model wrongly, from inaccurate estimation of volatilities and correlations and other inputs that are not directly observable and must be forecasted. We also discuss how to mitigate model risk.

Original language	English
Title of host publication	Encyclopedia of Quantitative Risk Analysis and Assessment
Subtitle of host publication	Melnick/Risk
Publisher	wiley
Pages	1-5
Number of pages	5
ISBN (Electronic)	9780470061596
ISBN (Print)	9780470035498
DOIs	https://doi.org/10.1002/9780470061596.risk0385
State	Published - 1 Jan 2008

Bibliographical note

Publisher Copyright:
© 2008 John Wiley & Sons, Ltd. All rights reserved.

Keywords

estimation errors
hedging
mark-to-market
mark-to-model
mitigation of model risk
model error
model misspecification
perfect capital markets
pricing securities

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10.1002/9780470061596.risk0385

Cite this

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Model Risk

Abstract

Bibliographical note

Keywords

Access to Document

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