Skip to content

Model risk

Banks use models to estimate the value of instruments such as options and to assess the level of risk that the bank is exposed to in its trading activities. These models are complex and errors in these models pose a risk to banks. They may overpay for financial instruments or underestimate the level of market or trading risk being taken.

This was written by admin. Posted on Sunday, November 29, 2009, at 9:13 pm. Filed under Model risk. Tagged , , , , . Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback.

Post a Comment

You must be logged in to post a comment.