My arguments against Value at Risk (or measurement of tail risks) 18 years ago and the very first article I ever wrote. My arguments have not changed, those of the opponents kept changing. The method is what blew up the banks and FNMA in 2008…
I am posting because it generalizes to all sucker risk taking in complex domains, including GMOs, etc. And also because people kept using a fraud periodically rediscovering it is a fraud yet kept using it.
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John KAY: “As the global financial crisis began to break in 2007, David Viniar, then chief financial officer of Goldman Sachs, reported in astonishment that his firm had experienced “25 standard deviation events, several days in a row”. Mr Viniar’s successor, Harvey Schwartz, has been similarly surprised. When the Swiss franc was unpegged last month, he described Goldman Sachs’ experience as a “20-plus standard deviation” occurrence.”
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This triggered a smear campaign, an 18 year smear campaign by very vactive people.
http://www.fooledbyrandomness.com/jorion.htmlAgainst Value at Risk
Philippe Jorion is perhaps the most credible member of the pro-VAR camp. I will answer his criticism while expanding on some of the more technical statements I made during the interview (DS, December/January 1997). Indeed, while Philippe Jorion and I agree on many core points, we mainly disagree on…
fooledbyrandomness.com|By ntaleb
via My arguments against Value at Risk (or… – Nassim Nicholas Taleb.