It is a major and unspoken assumption in virtually any academic treatment of commodities that realistic models are a prerequisite for successful risk management. Yet, in practice, realistic models are rarely used. Models that are grossly simplified or even downright wrong are, as a rule, the mainstay of many a risk management operation. This presents a puzzle. If the realistic models are really a prerequisite, then why is the practice so different?
Obviously, part of the answer flows from the f
The week on Risk.net, December 2–8, 2017Receive this by email