LETTERS
Risk Management
Published: January 18, 2009
Kudos to Joe Nocera (Jan. 4) for a balanced reporting of the role of risk management and the human element in the financial crisis of 2008. To discard useful financial-risk-measurement tools like the Value at Risk model because they didn’t prevent the crisis is akin to discarding casualty-insurance underwriting because it didn’t prevent Katrina. The limitations of VaR were well known from its advent; with a 95 percent confidence level, its predictive ability would fail statistically nearly once every 20 trading days.
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