Set out the strengths and weaknesses of VaR

VaR condenses risk into a single money figure that non-specialists grasp, can be compared across desks and asset classes, supports limits and capital allocation, and is widely accepted by regulators. Its limitations are serious. It says nothing about how large losses beyond the threshold can be; estimates depend heavily on method, look-back period and assumptions such as normality; it tends to understate risk when correlations rise in a crisis; and it is not always subadditive, so for some non-normal positions a combined portfolio's VaR can exceed the sum of the parts. It focuses on the left tail and ignores upside. The trap is treating a low VaR as proof of low risk when the tail beyond it is fat.