Around Model Risk in Finance

Denis Talay (1)

1 TOSCA - Simuler et calibrer des modèles stochastiques

In these notes we introduce some mathematical material to define, analyze, estimate and control model risk in Finance. We start with explaining why statistical and calibration techniques may not avoid facing model risk. We then present a couple of model risk measures and control strategies. Finally, we propose a mathematical framework to rigorously study the performances of strategies which, based on technical analysis, are not sensitive to model risk, and we compare these strategies to those which are based on mathematical models and therefore are subject to model risk.

Domaines: Mathématiques générales [math.GM]

Denis Talay. Around Model Risk in Finance. Modèles aléatoires en finance mathématique, Hermann, 2009, Travaux en cours ; 77. ⟨hal-00605427⟩