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Are more complex models always better?

A part of the curriculum of the Econometrics & Mathematical Economics master’s degree given in the VU University Amsterdam is the course Time Series Econometrics. In this course, students are taught how to analyze time series with the aid of ‘state-space models’, on the assumption that observations over time (such as the content of the Nile, for example) are driven by non-observed factors.

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IBOR reform in the euro area – progress in an ocean of uncertainty

To respond to the concerns about the reliability and robustness of the IBOR benchmarks, the Financial Stability Board (FSB) recommended the development of an alternative (nearly) risk-free reference rate (RFR) in its report in July 2014.

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Quantification of model risk

Risk management and treasury specialists are using diverse models on a daily basis to manage various risks. It is easy to forget about the risk that is implied in using the model itself. What we refer to as ‘model risk’ can arise due to misuse of the model, incorrect model choices or inappropriate model use.

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Challenges with the replacement of IBOR benchmark interest rates

Benchmark interest rates are an essential part of financial markets. These interest rates are used for numerous financial products, such as bonds, loans and derivatives, and in the construction of discount curves. This has applications in fair value calculations, hedge strategies, sensitivity analysis, treasury and risk management systems, and much more.

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Zanders Model Risk Framework

As automation and digitalization are adopted more widely in the financial industry, the number of financial models used is also steadily growing. As a result, an institution’s success or failure depends increasingly on the accuracy and reliability of those models.

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