In this paper, we investigate the importance of different loss functions when estimating and evaluating option pricing models. Our analysis shows that it is important to take into account parameter uncertainty, because this leads to uncertainty in the predicted option price. We illustrate the...

It is a well known from the empirical option pricing literature, that actual option prices show persistent and systematic deviations from theoretical values under standard pricing assumptions. While a substantial number of enhancements have been proposed, these approaches typically leave...

In this paper we investigate the ability of different models to produce useful VaR-estimates for exchange rate positions. We make a distinction between models that include sophisticated tail properties and models that do not. The former type of models often leads to too extreme VaR-estimates,...