ASSESSMENT OF MODEL RISK IN FINANCIAL MARKETS

• Authors: Jajuga Krzysztof
• Languages of publication: EN

Abstracts

EN

The paper presents the problem of assessment of risk in financial models. This is important from practical point of view since inappropriate use of models in financial markets may cause large losses. The paper describes the sources of model risk and the methods of measuring and handling this risk. Two types of measures are proposed: distribution based measures and sensitivity measures. The remaining part of the paper contains two examples. The first one concerns risk of optimal two-stock selection related to estimation of the correlation coefficient, the second one concerns the risk of option pricing related to estimation of the volatility parameter.

Keywords

EN

MODEL RISK; OPTION PRICING; PORTFOLIO THEORY

Discipline

• ECONOMICS: ECONOMICS

• Journal: Optimum. Studia Ekonomiczne
• Year: 2010
• Issue: 4 (48)
• Pages: 35-43
• Document type: ARTICLE

Contributors

author

Jajuga Krzysztof

Identifiers

CEJSH db identifier

11PLAAAA094524