This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with market uncertainty. During calm periods, the underlying risk forecast models...

Risk based regulation has emerged as the primary ingredient in the Basel-II proposals, where a bank capital is to become a direct funtion of a bank's riskiness. While the notion that bank capital be risk sensitive is intuitively appealing, the actual implementation, in the form of Basel-II,...