Market Risk and Model Risk for a Financial Institution Writing Options
用1976-1996年数据模拟金融机构卖出期权策略，发现模型不完美和波动率预测不准会带来很大风险，并探讨用高于历史最佳估计的波动率定价能否限制模型风险。
Derivatives valuation and risk management involve heavy use of quantitative models. To develop a quantitative assessment of model risk as it affects the basic option writing strategy that might be followed by a financial institution, we conduct an empirical simulation, with and without hedging, using data from 1976 to 1996. Results indicate that imperfect models and inaccurate volatility forecasts create sizable risk exposure for option writers. We consider to what extent the damage due to model risk can be limited by pricing options using a higher volatility than the best estimate from historical data.