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bubble value at risk: a countercyclical risk management approach, revised edition
max c. y. wong
Synopsis "bubble value at risk: a countercyclical risk management approach, revised edition"
most risk management books introduce value at risk (var) by focusing on what it can do and its statistical measurements. the credit crisis in 2008 was a tidal wave that debunked this well - established risk metric. in this book, the author introduces var by looking at its failures and explores possible alternatives for effective crisis risk management, including a new method of measuring risks called bubble value at risk that is countercyclical and can potentially buffer against market crashes. the frequentist - statistics - based var is predictive during normal circumstances but often fails patently during rare crisis episodes. in reality, crisis periods span only a tiny portion of financial market history. by relying on var for crisis risk management, we are using a tried and tested tool for the wrong occasion - we mistake the tree for the forest. the book argues that we need to unlearn our existing science of risk measurement and discover more robust ways to manage risks and to calculate risk capital. the book illustrates virtually every key concept or formula with a practical, numerical example, many of which are contained in interactive excel spreadsheets. bubble var offers a critical rethinking of some of the deficiencies in the calculation of risk capital. i particularly liked the more applied wisdom scattered throughout the text; here is a practitioner explaining how things really work, or for that matter, don ` t work in the real world. these remarks will definitely open the eyes of the more academic researcher. - - paul embrechts, director of risklab, eth zurich despite being in essence a critique on var and a recommendation for a more macroprudential risk measure (the author ` s bubble var), this is actually an excellent and accessible description of the standard var measure itself. it ` s worth getting for that reason alone, mr wong ` s writing style is so clear and lucid that he makes a very arcane and technical subject (almost) an easy read. he is right to point out the obvious limitations of var, although i often think the complaints of var stem as much from a misunderstanding of what it was always supposed to be, compared to what it obviously couldnt do but was touted as being good for, if you know what i mean. the author recommends the bubble var technique as a means to avoid the limitations of var and move towards a more accurate risk exposure estmation over the cycle. in that regard, this is definitely worth reading, especially by all bank cros. a great effort with book no. 1. i look forward to mr wong ` s next works. - - moorad choudhry
