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No Good Deals—No Bad Models

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Abstract

The recent financial crisis has highlighted the significance of unhedgable, illiquid positions in complex securities for individual financial institutions and for the global financial system as a whole. Indeed, the Basel Committee on Banking Supervision notes that \\"One of the key lessons of the crisis has been the need to strengthen the risk coverage of the capital framework. Failure to capture major on- and off-balance sheet risks, as well as derivative related exposures, was a key destabilizing factor during the crisis.\\"

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  • Nina Boyarchenko, 2014. "No Good Deals—No Bad Models," Liberty Street Economics 20140505, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86947
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    Cited by:

    1. Dirk Becherer & Klebert Kentia, 2016. "Hedging under generalized good-deal bounds and model uncertainty," Papers 1607.04488, arXiv.org, revised Apr 2017.

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    More about this item

    Keywords

    Model Uncertainty; Contingent claim pricing; Good deal bounds;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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