Part of the overall calculation of uncertainty according to RiskMetrics recommendations, however, should include a calculation of correlative uncertainty (Finger 2007). The rationale for including this specific uncertainty in calculations is that it helps to account for inaccuracies and inadequacies in the model, determining the level of risk associated with incorrectly defined or changing correlations used by the model in other calculations and definitions (Finger 2007). An accurate calculation of uncertainty and risk will necessarily include a calculation of the correlative uncertainties attendant upon the model and the situation to which it is applied, providing not a necessarily more accurate view of direct risk, but a useful evaluation of the risk prediction's efficacy.

RiskMetrics Calculations: Exposure and Uncertainty

An accurate and well-developed combined understanding of the exposure and uncertainty of a various investment venture or portfolio contributes a nearly complete understanding and assessment of the risks presented by that investment...
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