Goodbye to Value-at-risk as regulatory risk measure?

Stress testValue-at-risk(VaR) has over the past decades developed into beeing the most widely used risk measure within financial risk management.

However, along with the increasing popularity of VaR it has also been critisized for a number of weaknesses. It has been pointed out that these weaknesses lead to underestimation of risk and thus a false sense of security in the period leading up to the finacial crisis.

In may 2012 the Basel-comity proposed a complete revision of the rules. The proposal would replace the traditional VaR concept with a new concept known as "Expected Shortfall".

However the proposal does not contain the longanticipated simplification of the rule set - as had been suggested by both theoretical and practical financial practicioners.

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