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Value-at-Risk and Market Crashes

Author

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  • Philip Hua
  • Paul Wilmott

Abstract

If the Black-Scholes model and its extensions were the discoveries of the 70s and 80s, then Value-at-risk (VaR) models are the darlings of the 90s. These models have many uses within an organisation; for example, a risk manager may use VaR to allocate trading limits, senior management for asset allocation and regulators set and review capital reserves for the institutions. Whatever the uses, the essence of a VaR number is to act a benchmark for measuring how "risky" the portfolio is across different business lines and products. This article discusses the pitfalls of traditional VaR during times of volatile market and makes some suggestions for improvements.

Suggested Citation

  • Philip Hua & Paul Wilmott, 1999. "Value-at-Risk and Market Crashes," OFRC Working Papers Series 1999mf23, Oxford Financial Research Centre.
    • Handle: RePEc:sbs:wpsefe:1999mf23
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    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/1999mf23.pdf
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    Cited by:

    1. Flavio Bazzana, 2001. "I modelli interni per la valutazione del rischio di mercato secondo l'approccio del Value at Risk," Alea Tech Reports 011, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.

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