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Model Risk

In the aftermath of the recent financial crises, model risk was identied as a main concern, triggering the rise of robust methods, robustness being linked intrinsically to nonlinearity. It is our goal to work on nonlinear methods in Finance and Probability, which are both applicable in practice and robust. Interesting connections to the physical sciences appear in models where evolution processes depend nonlinearly on randomness. Our proposal is a rst step towards a rich agenda with numerous applications. The topic has a high potential for future developments because an ecient treatment of model risk plays a crucial role in many other sciences such as Medicine, Physics, Biology, Informatics, where mathematical models are used. Our primary application in Finance is of highest social relevance, as illustrated by the enormous losses in the recent crises and their dramatic consequences for related economies. An important goal of this research group is to strengthen the connection to the applied sciences.

Organisers of the Project Group