Discussion Paper

No Good Deals—No Bad Models

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.\\"

Keywords: Model Uncertainty; Contingent claim pricing; Good deal bounds;

JEL Classification: G1;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2014-05-05

Number: 20140505