Why value at risk holds its own

By Christopher Lotz

Gerhard Stahl

Don’t rely on VaR
 – Markus Leippold, Euromoney November 2004

MANY FINANCIAL DISASTERS could have been averted had banks’ risk management processes been working properly. For example, the losses in foreign exchange trading at National Australia Bank, one of the most prominent financial scandals of recent years, were preceded by a breakdown of management confidence in value-at-risk numbers resulting in a complete disregard of limit breaches.¹ It is a clear case of a collapse of the risk management process, rather than the inadequacy of VaR as a risk measure.