# kaal:claim:2998097-006

**Claim.** Stress tests, Value at Risk, and Monte Carlo scenarios imposed on financial intermediaries that lend to private investment funds necessarily rely on historical data, so they are of limited value as indicators of high risk sensitivity to future events.

**Type.** failure  **Support.** argued

**Holds when.**

- risk models used by intermediaries exposed to private funds

**Source quote.**

> Increased stress tests, Value at Risk, and Monte Carlo scenarios for financial intermediaries to private investments funds necessarily use historical data and are less valuable as an indicator of high risk sensitivity for future events.39

**From.** Wulf A. Kaal, *Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016* (2017), III.1 Critique of Regulatory Proposals, page 12

**Cite as.** Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097

**Verify.** sha256 of source PDF `0955054f49c7011d33c285579bb046e6b284e42755b10fd2546a728c202669d5` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202017%20-%20Private%20Investment%20Fund%20Regulation%20-%20Theory%20and%20Empirical%20Evidence%20from%201998%20to%202016.pdf

**Failure mode.** Backward looking risk models miss future tail events  (family: measurement-and-metric-failure)

**Topics.** risk-and-incentives

**Keywords.** value-at-risk, stress-testing, historical-data, risk-modeling

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