I think VAR is a very healthy development within the industry.
More Quotes from John Hull:
The HoLee model was the first term structure model. I remember reading their paper soon after it was published and as it was fairly different from many of the other papers that I had read, I had to read it quite a few times. I realized that it was a really important paper.John Hull
When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want the average direction to be upward.
John Hull
Briefly speaking, our conclusion is that stochastic volatility does not make a huge difference as far as the pricing is concerned if you get the average volatility right. It makes a big difference as far as hedging is concerned.
John Hull
Our starting point then was trying to find a way to incorporate mean reversion into the HoLee model.
John Hull
Our research led on to other things, such as the fact that exchange rates are not lognormally distributed.
John Hull
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
John Hull
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