Explanation

Model risk refers to the risk of financial loss resulting from using models that are incorrectly specified, misapplied, or based on flawed assumptions. In the Long-Term Capital Management (LTCM) case:

• I. Poor management oversight - This is an operational risk issue, not model risk. It relates to governance and control failures rather than model deficiencies.

• II. Financial reporting standards - This is a regulatory/accounting issue, not model risk. Financial reporting standards govern how financial information is presented, not the underlying models used for risk management.

• III. Ignoring autocorrelation of economic shocks - This is a classic model risk. LTCM's models assumed that economic shocks were independent over time, but in reality, financial crises often exhibit persistence (autocorrelation) where negative events cluster together.

• IV. Underestimating correlations among asset classes during economic crises - This is another key model risk. LTCM's models assumed stable correlations between different asset classes, but during the 1998 Russian debt crisis, correlations converged toward 1 as investors fled to quality assets, causing massive losses in supposedly diversified portfolios.

Therefore, only options III and IV represent actual model risk issues demonstrated in the LTCM case.