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Enterprise-level risk assessment of geographically diversified commercial farms: a copula approach

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  • Larsen, Ryan A.
  • Vedenov, Dmitry V.
  • Leatham, David J.
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    Abstract

    As agriculture becomes more industrialized, the role of risk measures such as value-at-risk (VaR) will become more utilized. In this case it was applied to geographical diversification and also modifying the traditional VaR estimation by incorporating a copula dependence parameter into the VaR estimation. In addition, an alternative risk measure was also calculated, CVaR. The CVaR, unlike VaR, is a coherent risk measure. Thus it does not suffer from many of the shortcomings of the VaR. The land portfolio consisted of Dryland wheat production acres in Texas, Colorado, and Montana. Three series of net returns were calculated for each region. Based on the VaR and the CVaR, the portfolio was optimized based on minimizing the expected loss based on historical net revenues. The results showed that diversification could be reduced by producing in all three areas.

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    Bibliographic Info

    Paper provided by Southern Agricultural Economics Association in its series 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia with number 46763.

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    Date of creation: 2009
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    Handle: RePEc:ags:saeana:46763

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    Keywords: Copula; CVaR; Risk-Management; Geographical Diversification; Agribusiness; Farm Management; Risk and Uncertainty;

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