The Riskiness of Risk Models

14 Pages Posted: 12 May 2011

See all articles by Christophe Boucher

Christophe Boucher

Université Paris I Panthéon-Sorbonne - CES/CNRS

Bertrand B. Maillet

EMLyon Business School (Paris Campus)

Date Written: May 1, 2011

Abstract

We provide an economic valuation of the riskiness of risk models. We estimate the impact of model risks (estimation and specification) on VaR estimates. We find that integrating the model risk into the VaR computations implies a substantial correction, of order of 20-40% of VaR levels in realistic simulations. We also propose and illustrate a practical methodology, which relies on a backtesting framework, for integrating the global model risk into VaR estimates.

Suggested Citation

Boucher, Christophe and Maillet, Bertrand B., The Riskiness of Risk Models (May 1, 2011). International Conference of the French Finance Association (AFFI), May 11-13, 2011. Available at SSRN: https://ssrn.com/abstract=1836842 or http://dx.doi.org/10.2139/ssrn.1836842

Christophe Boucher (Contact Author)

Université Paris I Panthéon-Sorbonne - CES/CNRS ( email )

106 bv de l'Hôpital
Paris, 75013
France

Bertrand B. Maillet

EMLyon Business School (Paris Campus) ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

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