“VaR is a peacetime statistic.”
Unlike some of the many critics out there, I think this is a very fair piece about risk management and VAR.
“Obviously, we are big proponents of risk models,” he said. “But a computer does not do risk modeling. People do it. And people got overzealous and they stopped being careful. They took on too much leverage. And whether they had models that missed that, or they weren’t paying enough attention, I don’t know. But I do think that this was much more a failure of management than of risk management. I think blaming models for this would be very unfortunate because you are placing blame on a mathematical equation. You can’t blame math,” he added with some exasperation.
I’m not sure why Yves has such beef with it.
She says normal distribution is a bad assumption, Nocera says that tail risk is underestimated. The key is that assumptions were no good and I’m content with that for a piece of this nature and market.
I think Yves can’t see the forest for the trees. What Nocera is saying is one level above how the modeling was impaired; what he is saying that VaR is imperfect but most people knew this. It’s only a tool that helps risk managers manage risk. It’s not the end all be all of risk quantification.
http://www.nakedcapitalism.com/2009/01/woefully-misleading-piece-on-value-at.html