The Black Swan: The Impact of the Highly Improbable · chapter 5 · id the-black-swan-c5-05-value-at-risk-var-models-used-
“Value at Risk (VaR) models used by banks systematically underestimate tail risk because they assume normally distributed returns. Taleb called for VaR to be banned in his 2009 Congressional testimony.”
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US Congress Hearing: The Risks of Financial Modeling -- VaR and the Economic Meltdown (2009)source alive
Taleb testified before the House Subcommittee in 2009, arguing that tail risks are non-measurable, that VaR leads to higher risk taking due to anchoring effects, and called for VaR to be banned.
Journal of Risk Model Validation: VaR and the Global Financial Crisissource alive
During the 2007-2008 crisis, VaR was criticised for failing to capture systemic tail risks, leading to significant underestimation of bank losses. Many institutions experienced losses far exceeding their VaR estimates.
Wikipedia: Value at Risksource alive
VaR is not subadditive and does not capture tail risk magnitude. Post-2008 regulatory frameworks increasingly require Expected Shortfall instead of VaR for market risk capital requirements.
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