One of the least understood concepts on Wall Street - Value At Risk aka VaR. For a good practical example of what happens when it goes ballistic, see the Goldman Press Release. And for some observations on why VaR could be the latest black swan-in-waiting, as well as for a much more in depth overview of liquidity, especially as it pertains to lack of diversity, please read the attached presentation out of the Professional Risk Managers' International Association.

Liquidity black holes, such as the ones we see growing all around us these days, imply that the VaR methodology of risk evaluation is likely the next major risk factor for the capital markets. Trust Goldman to leads the charge in seeing how much they can get away with before another market event.

Also, some good introductory material for all those who have been consistently inquiring about more information on market liquidity and the lack thereof.

Liquidity 2-16-05