  The paper proposes a new approach to model risk measurement based on the
Wasserstein distance between two probability measures. It formulates the
theoretical motivation resulting from the interpretation of fictitious
adversary of robust risk management. The proposed approach accounts for
equivalent and non-equivalent probability measures and incorporates the
economic reality of the fictitious adversary. It provides practically feasible
results that overcome the restriction of considering only models implying
probability measures equivalent to the reference model. The Wasserstein
approach suits for various types of model risk problems, ranging from the
single-asset hedging risk problem to the multi-asset allocation problem. The
robust capital market line, accounting for the correlation risk, is not
achievable with other non-parametric approaches.
