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Value at risk: a critical overview

Author

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  • Robert Sollis

Abstract

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.

Suggested Citation

  • Robert Sollis, 2009. "Value at risk: a critical overview," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 17(4), pages 398-414, November.
  • Handle: RePEc:eme:jfrcpp:v:17:y:2009:i:4:p:398-414
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    Citations

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    Cited by:

    1. Dumitru Cristian OANEA & Victoria Gabriela ANGHELACHE & Bogdan ZUGRAVU, 2013. "Econometric Model for Risk Forecasting," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(2), pages 123-127, May.
    2. Bogdan ZUGRAVU & Dumitru Cristian OANEA & Victoria Gabriela ANGHELACHE, 2013. "Analysis Based on the Risk Metrics Model," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(2), pages 145-154, May.
    3. Gabriela Anghelache & Dumitru-Cristian Oanea, 2014. "Main Romanian Commercial Banks’ Systemic Risk during Financial Crisis: a CoVar Approach," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 6(2), pages 069-080, December.
    4. Constantin Anghelache & Bodo Gyorgy, 2016. "Theoretical aspects regarding systemic risk and managerial decisions during the crisis," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(12), pages 110-116, December.
    5. Dumitru-Cristian OANEA & Gabriela-Victoria ANGHELACHE, 2014. "Systemic Risk Caused By Romanian Financial Intermediaries During Financial Crisis: A Covar Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 14, pages 171-178, December.
    6. repec:rsr:supplm:v:65:y:2017:i:6:p:102-111 is not listed on IDEAS

    More about this item

    Keywords

    Risk management; Regulation; Value analysis;

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