I can calculate the motion of heavenly bodies, but not the madness of people.
—Sir Isaac Newton, mathematician and physicist, (1642–1727)
The 2008 credit crisis has challenged the foundation and the tradition of value at risk (VaR) as the standard risk measure and the de facto metric for minimum capital. As we have seen in Part Two, the weaknesses in VaR had been well known and debated in academia for some time; for example, see the warnings of Danielsson and colleagues (2001). Unfortunately they have been largely ignored by the industry. It was only during the global financial crisis (2008) that these weaknesses were put to the test. VaR was subsequently criticized by a populist movement and popular press; see Taleb (2007).
Three major weaknesses highlight the need for a better alternative: