Indeed, while Philippe Jorion and I agree on many core points, we mainly disagree on the conclusion: mine is to while his is to supplement it with other methods.
My refutation of the VAR does not mean that I am against quantitative risk management - having spent all of my adult life as a quantitative trader, I learned the hard way the fails of such methods.
I believe that the VAR is the alibi bankers will give shareholders (and the bailing-out taxpayer) to show documented due diligence and will express that their blow-up came from truly unforeseeable circumstances - not from taking large risks they did not understand.
But my sense of social responsibility will force me to menacingly point my finger.
While perfection is unattainable, flawlessness can be, as it is a methodological consideration and refers to the applicability for the task at hand.
Marshall, Allais and Coase used the term charlatanism to describe the concealment of a poor understanding of economics with mathematical smoke.
I will answer his criticism while expanding on some of the more technical statements I made during the interview (DS, December/January 1997).I maintain that the due-diligence VAR tool encourages untrained people to take misdirected risk with the shareholder's, and ultimately the taxpayer's, money.The act of reducing risk to one simple quantitative measure on grounds that "everyone can understand" it clashes with my culture.I am simply against the application of unseasonned quantitative methods.
I think that VAR would be a wonderful measurement if we had models designed for that purpose and knew something about their parameters.VAR defenders make it look like the only solution where there are simpler and more reliable ones.