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Did VaR Forecast the U.S. Subprime Crisis?Submitted by: Alan Laubsch, RiskMetrics Labs Asia, and Ron Papanek, Market Strategist

That depends on what VaR model was used. Most banks' models performed poorly which is not surprising given the popular use of historical simulation. While historical simulation provides stable VaR numbers, it has weak forecasting power and is entirely inappropriate during regime shifts (see Finger's "How Historical Simulation Made Me Lazy"). Responsive volatility estimators, such as EWMA and ARCH type models performed much better, and indeed provided early warning signals months before the full read more

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on August 22, 2008 (boomark / email).