Model risk as part of the operational risk is a serious problem for financial institutions. As the pricing of derivatives as well as the computation of the market or credit risk of an institution depend on statistical models the application of a wrong model can lead to a serious over- or...

In this paper we study the impact of model uncertainty, which occurs when linking a stress scenario to default probabilities, on reduced-form credit risk stress testing. This type of uncertainty is omnipresent in most macroeconomic stress testing applications due to short time series for banks'...

I entertain a generalization of the standard Bolzmann-Gibbs-Shannon measure of entropy in multiplier preferences of model uncertainty. Using this measure, I derive a generalized exponential certainty equivalent, which nests the exponential certainty equivalent of the standard Hansen-Sargent...