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Explain valid criticisms of Value at Risk

Explain valid criticisms of Value at Risk.

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Certainly, there are also valid criticisms too:

  • This does not tell you what the loss will be beyond the value at risk value
  • Value at risk is concerned with typical market circumstances, not the many more events
  • This uses historical data, 'like driving a car through looking in the rear-view mirror only'
  • In the time horizon positions could modify dramatically (because of normal trading or because of hedging or expiration of derivatives).

A common criticism of traditional Value at Risk has been that this does not satisfy all of specific commonsense criteria.

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