VaR Is From Mars, Capital Is From Venus
Research Paper
April 14, 2009
Preview
The Financial Services Authority (FSA) of the UK released the Turner Review, an analysis of the origins of our financial crisis and recommendations for the future of financial services regulation. Among the recommendations is a call for a "fundamental review" of current minimum capital rules, in particular VaR-based capital for trading portfolios. We address some of the wrong reasons the FSA has put forth to cast VaR aside, offer some good reasons of our own, and comment on where short-term risk measures could contribute in a future trading book capital framework.
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