14 January 2015

How do risk metrics impact agents' behavior. Focus on the model risk

Seminar talk of the chair Ethics and finance

Marius Frunza, Schwarzthal Kapital

The introduction in 2013 of the Expected Shortfall as a regulatory alternative to the traditional Value at Risk, revealed many challenges for financial institutions not only in the implementation but as well in the use of this metrics. Generally the metrics used for assessing the value and the risk of financial instruments should be fundamentally reviewed. First the study will discuss the various metrics used for market risk, we assess the impact of those metric on the behavior of the agents. Second we tackle a more fundamental issue of the price of an instrument measured as an expectation. We show the limitations and the downturn of this practice mainly for exotic products. Third we assess the failure of various risk metrics and models in incomplete markets and under market dislocation scenarios. Thus we emphasize the main drivers of model risk and its consequences for risk management.


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Venue : Building Le France
Localisation : Salle CNRS 638
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