Value at risk: a critical overview
Purpose - A misplaced reliance on value at risk (VaR) has been focused on in the media as one of the main reasons for the current financial crisis, and the recently published Design/methodology/approach - Simple numerical examples utilising real and simulated data are employed to reinforce the main arguments. Findings - This paper explains that some of the main approaches employed by banks for computing VaR have serious weaknesses. These weaknesses have contributed to the current financial crisis. Research limitations/implications - Consistent with the introductory nature of this paper, the empirical research is limited to simple examples. Practical implications - The evidence here suggest that if VaR is to play a major role under future financial regulation then research is required to develop improved estimation techniques and backtesting procedures. Originality/value - This paper differs from many academic papers on VaR by assuming only a very basic knowledge of mathematics and statistics.
Volume (Year): 17 (2009)
Issue (Month): 4 (November)
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