The Volatility Flaw in Model Risk Modeling

The volatility of something gets very low, hapton has an unfortunate habit of going up again. If thea volatility historically was, say, ten % a year, and the volatility now is only one % a year,. then i've got to be asking myself, ok, well, there's a reasonable chance that that thing will pop up from one% to ten%. And so what i can do is, er, then apply a volatility flaw. In other words, i won't allow the volatility estimate i'm using to go below a certain level., which in practical terms means this kind of on the site of position i can have even as voluntility gets lower and lower and lower.

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