Model risk and capital reserves

@inproceedings{Kerkhof2010ModelRA,
  title={Model risk and capital reserves},
  author={J. P. vande Kerkhof and Bertrand Melenberg and Hans Joachim Schumacher},
  year={2010}
}
We propose a procedure to take model risk into account in the computation of capital reserves. This addresses the need to make the allocation of capital reserves to positions in given markets dependent on the extent to which reliable models are available. The proposed procedure can be used in combination with any of the standard risk measures, such as Value-at-Risk and expected shortfall. We assume that models are obtained by usual econometric methods, which allows us to distinguish between… CONTINUE READING
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