Beware Layers of the Pyramid

Intelligent Investor Funds analyst Matt Ryan recently sat the third and final exam for his CFA candidacy. It’s strange (and unfortunately common amongst academic institutions) that they continue to teach things that they know are wrong. The CFA course teaches Value at Risk (VaR), a once widely used modelling tool used by financial institutions to measure risk that was completely discredited by the financial crisis. The model looks back over historical prices and tells you that you can be 95% confident, for example that your losses won’t exceed a certain amount (it could be 99%, or 99.5%, it doesn’t...

Intelligent Investor Funds analyst Matt Ryan recently sat the third and final exam for his CFA candidacy. It’s strange (and unfortunately common amongst academic institutions) that they continue to teach things that they know are wrong. The CFA course teaches Value at Risk (VaR), a once widely used modelling tool used by financial institutions to measure risk that was completely discredited by the financial crisis.

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