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...

This paper studies the design of optimal time-consistent monetary policy in an economy where the planner trusts its own model, while a representative household uses a set of alternative probability distributions governing the evolution of the exogenous state of the economy. In such environments,...

Financial risk measurement relies on models of prices and other market variables, but models inevitably rely on imperfect assumptions and estimates, creating model risk. Moreover, optimization decisions, such as portfolio selection, amplify the effect of model error. In this work, we develop a...