Alan White and I have not as yet written anything on VAR but we have done a number of consulting projects in this area and expect to do more.
More Quotes from John Hull:
There are challenges in terms of the measurement of VAR for what are known as nonlinear derivatives, where things like gamma and vega are important dimensions of the risk.John Hull
Our research led on to other things, such as the fact that exchange rates are not lognormally distributed.
John Hull
If each of your time steps is one week long, you are not modeling the stock price terribly well over a one-week time period, because you are saying that there are only two possible outcomes.
John Hull
One important measurement issue concerns the fat tails problem that I mentioned earlier. VAR is concerned with extreme outcomes. If the tails of the probability distributions we are using are too thin, our VAR measures are likely to be too low.
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
Yes, our tree has an interesting shape. The center branches reflect the shape of the zero curve. When extreme parts of the tree are reached the branching pattern changes to accommodate the mean reversion.
John Hull
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