In finance, model risk is the risk involved in using models to value financial securities. Rebonato considers alternative definitions including: After observing a set of prices for the underlying and hedging instruments, different but identically calibrated models might produce different prices for the same exotic product. Losses will be incurred because of an ‘incorrect’ hedging strategy suggested by a model.
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- In finance, model risk is the risk involved in using models to value financial securities. Rebonato considers alternative definitions including: After observing a set of prices for the underlying and hedging instruments, different but identically calibrated models might produce different prices for the same exotic product. Losses will be incurred because of an ‘incorrect’ hedging strategy suggested by a model. Rebonato defines model risk as "the risk of occurrence of a significant difference between the mark-to-model value of a complex and/or illiquid instrument, and the price at which the same instrument is revealed to have traded in the market."
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- In finance, model risk is the risk involved in using models to value financial securities. Rebonato considers alternative definitions including: After observing a set of prices for the underlying and hedging instruments, different but identically calibrated models might produce different prices for the same exotic product. Losses will be incurred because of an ‘incorrect’ hedging strategy suggested by a model.
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