Model risk of risk models

   Daníelsson, J., K. James, M. Valenzuela, and I. Zer (2016, February). Model risk of risk models. Journal of Financial Stability forthcoming. Forthcoming: Journal of Financial Stability.

Download paper
Webappendix
This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with market uncertainty. During calm periods, the underlying risk forecast models produce similar risk readings; hence, model risk is typically negligible. However, the disagreement between the various candidate models increases significantly during market distress, further frustrating the reliability of risk readings. Finally, particular conclusions on the underlying reasons for the high model risk and the implications for practitioners and policy makers are discussed.

@ARTICLE{DanielssonJamesValenzuelaZer2015a,
 author =  {J{\'o}n Dan{\'\i}elsson and  Kevin James and Marcela
                 Valenzuela and Ilknur Zer},
 title =   {Model risk of  risk models},
 journal = "Journal of Financial Stability",
 volume =  {forthcoming},
 year =    2016,
 note =    {Forthcoming: Journal of Financial Stability},
 url =     {RiskResearch.org},
}