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Model Risk, Solvency, and Risk Aggregation

Prof. Dr. Paul Embrechts, Department of Mathematics, ETH Zurich

Under both Basel II/III for banking as well as Solvency 2/SST for insurance, Model Risk (MR), especially for Risk Aggregation purposes, plays an important role. In this talk I will concentrate on Dependence Uncertainty and quantify MR from that point of view. Besides reviewing some of the main results obtained over the recent years, I will discuss several examples coming from the realm of Operational Risk, as well as the calculation of Economic Capital in a real banking example. A basic reference is A.J. McNeil, R. Frey, P. Embrechts (2015) Quantitative Risk Management: Concepts, Techniques and Tools. Revised Edition, Princeton University Press.