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Assessing Credit Risk in an Agricultural Loan Portfolio

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  • Glenn D. Pederson
  • Lyubov Zech

Abstract

"We show that agricultural lenders can implement a credit risk model that uses their loan portfolio data and complies with the new Basel Capital Accord without requiring Merton-type model assumptions about underlying asset price volatility. A credit risk model is described and calibrated to the loan portfolio of a farm lender. The model is used to produce plausible estimates of expected loss, unexpected loss, and credit value-at-risk (VaR) at the portfolio and subportfolio (sector) levels. The lender could use these kinds of estimates to meet regulatory requirements or to adjust the level of capital in response to changing economic conditions." Copyright (c) 2009 Canadian Agricultural Economics Society.

Suggested Citation

  • Glenn D. Pederson & Lyubov Zech, 2009. "Assessing Credit Risk in an Agricultural Loan Portfolio," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(2), pages 169-185, June.
  • Handle: RePEc:bla:canjag:v:57:y:2009:i:2:p:169-185
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    References listed on IDEAS

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    1. Carey, Mark & Hrycay, Mark, 2001. "Parameterizing credit risk models with rating data," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 197-270, January.
    2. Gordy, Michael B., 2000. "A comparative anatomy of credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 119-149, January.
    3. Alexandre Kurth & Dirk Tasche, 2002. "Credit Risk Contributions to Value-at-Risk and Expected Shortfall," Papers cond-mat/0207750, arXiv.org, revised Nov 2002.
    4. Gordy, Michael B., 2002. "Saddlepoint approximation of CreditRisk+," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1335-1353, July.
    5. Stam, Jerome M. & Dixon, Bruce L., 2004. "Farmer Bankruptcies And Farm Exits In The United States, 1899-2002," Agricultural Information Bulletins 33689, United States Department of Agriculture, Economic Research Service.
    6. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
    7. Ani L. Katchova & Peter J. Barry, 2005. "Credit Risk Models and Agricultural Lending," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 194-205.
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    Cited by:

    1. repec:ags:gewipr:261868 is not listed on IDEAS
    2. Hering, I. & Mußhoff, O., 2016. "Dynamic Incentives in Microfinance – What about the Farmers?," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 0, March.
    3. Weber, Ron & Musshoff, Oliver, 2012. "Microfinance for agricultural firms - What can we learn from bank data?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126708, International Association of Agricultural Economists.

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