Event Description

This talk illustrates the enormous model risk that is present in the quantitative finance field and other domains. Various models calibrated to the same data can lead to significantly different results. Even within a single model, particular choices, like the objective function of a calibration, the numerical scheme of a Monte-Carlo simulation, the instruments to include or exclude from the calibration exercises can again lead to a variety of different outcomes. As a result, we must conclude that there is quite a bit of uncertainty around various pricing exercises. This issue is also present in other domains of science, like climate modelling, and hence one has to be cautious by using the outcome of a single model for policy making. Finally, we connect model risk with conic finance.