Applying hedging strategies to estimate model risk and provision calculation

This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different models (pricing hypothesis) under a homogeneous framework which allows concluding which model is the closest to the reference. The relative model risk measure is defined as the expected shortfall of the hedging strategy at a given time horizon for a chosen sign...