A Methodology for Assessing Model Risk and Its Application to the Implied Volatility Function Model
提出一种评估模型风险的方法，并应用于隐含波动率函数模型。研究发现，该模型在复合期权定价和套期保值中风险较小，但在某些障碍期权中风险显著。
We propose a methodology for assessing model risk and apply it to the implied volatility function (IVF) model. This is a popular model among traders for valuing exotic options. Our research is different from other tests of the IVF model in that we reflect the traders' practice of using the model for the relative pricing of exotic and plain vanilla options at one point in time. We find little evidence of model risk when the IVF model is used to price and hedge compound options. However, there is significant model risk when it is used to price and hedge some barrier options.