Publication Date
Financial Markets Group Special Papers SP 100
We argue that most current methodologies for value-at-risk (VaR) underestimate the VaR, and are therefore ill-suited for market risk capital. Better VaR methods are avail- able, such as the tail–fitting method proposed here. However, financial institutions may be reluctant to use those methods since current market risk regulations may, perversely, provide incentives for banks to underestimate the VaR.
