Model Risk and Uncertainty in the Financial World
First published:
ISBN: 978-1-78272-420-9
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The foundations of risk and uncertainty
Foreword
Preface
Acknowledgements
The evolution of models
The foundations of risk and uncertainty
Uncertainty: a taxonomy
Model risk and uncertainty: a survey of the institutional landscape
Model specification risk and uncertainty
Model operation risk and uncertainty
Data, models and their purpose
Artificial intelligence in finance: a synthesis of human and machine
A deeper dive into machine learning methods: their opportunities, limitations, risks and uncertainties
Measurement of risk and estimation of uncertainty in prediction models
Using models under risk and uncertainty
When models fail
Epilogue: models and the future
There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.
William Shakespeare, Hamlet
2.1 INTRODUCTION
Rolling Stones guitarist Keith Richards, referring to the difficulties of playing outdoors, said, “with stadiums you’ve always got the weather to deal with. God joins the band in one form or another”.11 URL: https://www.rollingstone.com/music/music-news/keith-richards-i-want-to-see-how-far-the-stones-can-go-157746/ He was referring to the vagaries of weather conditions that can disrupt a live outdoor concert.
In 2019, on the last engagement of the Rolling Stones’ No Filter tour in Miami, Florida, Hurricane Dorian intervened. The concert was moved to Friday, 30 August instead of Saturday 31 August, ahead of the hurricane. However, even on that Friday, the storm threatened and finally, during the encore, the rain began to come down in sheets as the easily recognised opening lines of “Gimme Shelter” washed over the stadium: “the storm is threatening my very life today”. This was after the concert had already been rescheduled owing to lead singer Mick Jagger’s heart surgery earlier in the year. Let us pause and consider: was the weather-related
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