This paper describes the current taxonomy of model risk, ways for its mitigation and management and the importance of the model validation function in collaboration with other departments to design and implement them.

Gaussian copulas are widely used in the industry to correlate two random variables when there is no prior knowledge about the co-dependence between them. The perturbed Gaussian copula approach allows introducing the skew information of both random variables into the co-dependence structure. The...

This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different models (pricing hypothesis) under a homogeneous framework...

Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the Martingale condition might not be preserved. This paper...

In this paper, we consider a generalisation of the Hobson–Rogers model proposed by Foschi and Pascucci (Decis Eocon Finance 31(1):1–20, <CitationRef CitationID="CR9">2008</CitationRef>) for financial markets where the evolution of the prices of the assets depends not only on the current value but also on past values. Using...</citationref>