VAR: risk mitigant or amplifier?


The current financial market crisis has elicited accusations that mechanistic adherence to risk management systems, such as value-at-risk (VAR) market risk measures, may have been a contributing factor. The model in the box opposite explores how, in combination with desired capital levels, risk management techniques - including VAR-type techniques - can lead to destabilising asset price behaviour in certain circumstances.

It is true that VAR-type techniques can help risk managers judge and potent

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