Model Risk in Incomplete Markets with Jumps

Detering, Nils und Packham, Natalie (2015): Model Risk in Incomplete Markets with Jumps. In: Glau, Kathrin; Scherer, Matthias und Zagst, Rudi (Hrsg.): Innovations in Quantitative Risk Management. Springer Proceedings in Mathematics & Statistics ((PROMS), Bd. 99. Cham: Springer. S. 39-56

Abstract

We are concerned with determining the model risk of contingent claims when markets are incomplete. Contrary to existing measures of model risk, typically based on price discrepancies between models, we develop value-at-risk and expected shortfall measures based on realized P&L from model risk, resp. model risk and some residual market risk. This is motivated, e.g., by financial regulators’ plans to introduce extra capital charges for model risk. In an incomplete market setting, we also investigate the question of hedge quality when using hedging strategies from a (deliberately) misspecified model, for example, because the misspecified model is a simplified model where hedges are easily determined. An application to energy markets demonstrates the degree of model error.

• Dokumententyp: Buchbeitrag
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• ISBN: 978-3-319-09113-6 ; 978-3-319-09114-3
• ISSN: 2194-1009
• Ort: Cham
• Sprache: Englisch