Model risk and capital reserves |
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| Authors: | Jeroen Kerkhof Bertrand Melenberg Hans Schumacher |
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| Institution: | 1. VAR Strategies, Belgium;2. Department of Econometrics and Operations Research, CentER, Netspar, Tilburg University, Netherlands;3. Department of Finance, Tilburg University, Netherlands |
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| Abstract: | We propose a procedure to take model risk into account in the computation of capital reserves. This addresses the need to make the allocation of capital reserves to positions in given markets dependent on the extent to which reliable models are available. The proposed procedure can be used in combination with any of the standard risk measures, such as Value-at-Risk and expected shortfall. |
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| Keywords: | G12 G18 |
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