Again, the failure of financial risk models in 2008 was pretty much the same thing. Same techniques, similar failures.
Shocking part with reading about risk models and VaR was the basic assumption of the normal distribution!!
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well, Central Limit Theorem and all that, not so bad. You supplement VaR with stress scenarios for extremes
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Well that's the central point of Taleb - you can't model a fat-tailed, power-law domain with bell curve.
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And even the smartest ppl were doing it. https://en.wikipedia.org/wiki/David_X._Li#CDOs_and_Gaussian_copula …
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A big issue is that if you give a trader a VaR "budget", he'll seek out fat tails.
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it's risk he's getting paid for taking, but his controllers aren't seeing. Goodhart's Law.
End of conversation
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