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You are consulting to a financial institution that uses an imprecise model for pricing and hedging a particular type of structured product. 1 ) Discuss

You are consulting to a financial institution that uses an imprecise model for pricing and hedging a particular type of structured product.

1)

Discuss how, if at all, it is likely to realize its mistake.

2)

As the risk management consultant, what procedures would you recommend mitigating the institution

s model risk?

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