http://www.nakedcapitalism.com/2007/10/gillian-tett-perverse-effects-of-value.html Sun, 22 Nov 2009 07:56:24 -0500 http://wordpress.org/?v=2.8.4 hourly 1 http://www.nakedcapitalism.com/2007/10/gillian-tett-perverse-effects-of-value.html#comment-1039 Anonymous Sat, 13 Oct 2007 13:58:00 +0000 http://www.nakedcapitalism.com/2007/10/gillian-tett-the-perverse-effects-of-value-at-risk-models/#comment-1039 The Gaussian curve fit them all?<br/>In case one would be interested to dig further none of these markets (equities,CMO,CLO,CDO)were and are meeting with the criteria of normal statitical distribution (Gauss or Poisson)it is hard to understand the VAR in these cases.<br/>Most of the models I have been through are skewed on the upside,do not read inflexion point untill too late. The Gaussian curve fit them all?
In case one would be interested to dig further none of these markets (equities,CMO,CLO,CDO)were and are meeting with the criteria of normal statitical distribution (Gauss or Poisson)it is hard to understand the VAR in these cases.
Most of the models I have been through are skewed on the upside,do not read inflexion point untill too late.

]]> http://www.nakedcapitalism.com/2007/10/gillian-tett-perverse-effects-of-value.html#comment-1038 a Sat, 13 Oct 2007 13:29:00 +0000 http://www.nakedcapitalism.com/2007/10/gillian-tett-the-perverse-effects-of-value-at-risk-models/#comment-1038 Why do we have Var? It's because the regulators are not very knowledgeable about the businesses they are regulating, and so they prefer the magic bullet of a universal method of risk evaluation to admitting they are completely clueless. But good risk assessment is an activity with a lot of added value, and there is a big difference between those banks with a strong culture of risk evaluation and those which think Var suffices. Such risk assessment (stress tests - what kinds and with what limits, when to allow overshoots and when not to) is very proprietary and only passes from one bank to the next via slow diffusion (new hires and regulators making hints). Why do we have Var? It’s because the regulators are not very knowledgeable about the businesses they are regulating, and so they prefer the magic bullet of a universal method of risk evaluation to admitting they are completely clueless. But good risk assessment is an activity with a lot of added value, and there is a big difference between those banks with a strong culture of risk evaluation and those which think Var suffices. Such risk assessment (stress tests – what kinds and with what limits, when to allow overshoots and when not to) is very proprietary and only passes from one bank to the next via slow diffusion (new hires and regulators making hints).

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