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Apr
2
answered How does the number of free dimensions of a model affect its required size of sample?
Feb
2
awarded  Informed
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
Only once one understands what is going, one might start to ask commercial questions. Imagine an institution managing vega-risk in such a dont-care fashion with a model where implied vola is assumed constant. Can you make money off of them? Or at least offer them vega-protection cheaper by having a better(?) model?
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
"Why care": This is more difficult to comment on. Some people think logical consistency is an end in itself, some are more pragmatic But I think that a logically inconsistent risk measuring approach is inherently dangerous. At least as long as you do not understand the nature and scope of those limitations.
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
The question is exactly how this “related somehow by construction” can be achieved. Look at a 2period option in a Black-Scholes Model. Black-Scholes assumes deterministic implied vola. So it makes no sense within this model to apply an implied vola distribution after one period to assess the risk of this option. The price at t=0 will be inconsistent with all prices at t=1 by construction.
Jan
30
awarded  Revival
Jan
29
awarded  Teacher
Jan
29
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Jan
29
answered Applying interest rate shocks under Solvency II
Jan
29
awarded  Student
Jan
29
asked Consistency of economic scenarios in nested stochastics simulation