Focusing on the interconnections between the Basel regulatory capital formula and several well-specified statistical models, this working paper seeks to understand some of the important issues embedded in the Basel Accord. These include: Where does this formula come from? What risks does it try...

This paper studies adaptive learning with multiple models. An agent operating in a self-referential environment is aware of potential model misspecification, and tries to detect it, in real-time, using an econometric specification test. If the current model passes the test, it is used to...