The model risk is the risk of inappropriate modelling and misused quantitative methods in financial risk management. One of the most challenging model risk lies in modelling the dependence between individual risks. In this talk I will give a general introduction to this challenge. To give a proper mathematical framework to study the model risk in dependence, I will introduce the admissible risk class as the set of all possible risk aggregation when the marginal distributions of individual risks are given but the dependence structure among them is unspecified. The concept provides flexibility to analyze model risk of dependence. I will also discuss some theoretical results on convex ordering bounds of this class, which can be used to identify extreme scenarios for risk aggregation and calculate bounds on convex risk measures and other quantities of interest.
Dr. Pantula is the Director of the Division of Mathematical Sciences at the The National Science Foundation and will give a presentation about the Programs in the Division of Mathematical Sciences.