The Riskiness of Risk Models
We provide an economic valuation of the riskiness of risk models by directly measuring the impact of model risks (specification and estimation risks) on VaR estimates. We find that integrating the model risk into the VaR computations implies a substantial minimum correction of the order of 10-40% of VaR levels. We also present results of a practical method - based on a backtesting framework - for incorporating the model risk into the VaR estimates.
|Date of creation:||Mar 2011|
|Date of revision:|
|Publication status:||Published in Documents de travail du Centre d'Economie de la Sorbonne 2011.20 - ISSN : 1955-611X. 2011|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00587779|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
References listed on IDEAS
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- Yacine Aït-Sahalia & Julio Cacho-Diaz & Roger J.A. Laeven, 2010.
"Modeling Financial Contagion Using Mutually Exciting Jump Processes,"
NBER Working Papers
15850, National Bureau of Economic Research, Inc.
- Aït-Sahalia, Yacine & Cacho-Diaz, Julio & Laeven, Roger J.A., 2015. "Modeling financial contagion using mutually exciting jump processes," Journal of Financial Economics, Elsevier, vol. 117(3), pages 585-606.
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