Chapter 2: FAQs 43
- Within the time horizon positions could change
dramatically (due to normal trading or due to
hedging or expiration of derivatives)
A common criticism of traditional VaR has been that
it does not satisfy all of certain commonsense criteria.
Artzner et al. (1997) specify criteria that make a risk
measurecoherent. And VaR as described above is
not coherent.
Prudence would suggest that other risk-measurement
methods are used in conjunction with VaR, including
but not limited to, stress testing under different real
and hypothetical scenarios, including the stressing of
volatility especially for portfolios containing derivatives.
References and Further Reading
Artzner, P, Delbaen, F, Eber, J-M & Heath, D 1997 Thinking
coherently.Risk magazine 10 (11) 68–72
