Value-at-risk: down but not out

‘No more VAR.’ This increasingly shrill call is being made by a section of the academic finance community both in journals and at conferences. Now, some practitioners are latching on, offering ‘VAR-free’ portfolio optimisation that is being promoted as being superior to competitor products.

Yet this risk measure remains in widespread use, and is no doubt being calculated thousands of times across the world as you read this editorial, both in the market risk and credit risk context. It is used in disclosures to shareholders by financial institutions. VAR is also expected to remain unchanged as an approved regulatory methodology in the market risk component of Basel II, the forthcoming new bank capital adequacy accord, and serves as the foundation stone for the new credit risk

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