Measuring Market Risk Of The Cattle Feeding Margin: An Application Of Value-At-Risk Analysis
VaR gives a prediction of potential portfolio losses, with a certain level of confidence, that may be encountered over a specified time period due to adverse price movements in the portfolio's assets. For example, a VaR of 1 million dollars at the 95% level of confidence implies that overall portfolio losses should not exceed 1 million dollars more than 5% of the time over a given holding period. This research examines the effectiveness of VaR measures, developed using alternative estimation techniques, in predicting large losses in the cattle feeding margin. Results show that several estimation techniques, both parametric and non-parametric, provide well calibrated VaR estimates such that violations (losses exceed the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using JP Morgan's Risk Metrics methodology seem promising.
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- Ted C. Schroeder & Marvin L. Hayenga, 1988.
"Comparison of selective hedging and options strategies in cattle feedlot risk management,"
Journal of Futures Markets,
John Wiley & Sons, Ltd., vol. 8(2), pages 141-156, 04.
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"Regulatory Evaluation of Value-at-Risk Models,"
Center for Financial Institutions Working Papers
96-51, Wharton School Center for Financial Institutions, University of Pennsylvania.
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- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
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