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Credit Risk Models: An Application to Agricultural Lending

Author

Listed:
  • Katchova, Ani L.
  • Barry, Peter J.

Abstract

Credit risk models are developed and used to estimate capital requirements for agricultural lenders under the New Basel Capital Accord. The theoretical models combine Merton’s distance-to-default approach with credit value-at-risk methodologies. Two applied models, CreditMetrics and KMV, are illustrated using farm financial data. Expected and unexpected losses for a portfolio of farms are calculated using probability of default, loss given default, and portfolio risk measures. The results show that credit quality and correlations among farms play a significant role in risk pricing for agricultural lenders.

Suggested Citation

  • Katchova, Ani L. & Barry, Peter J., 2003. "Credit Risk Models: An Application to Agricultural Lending," Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri 132519, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  • Handle: RePEc:ags:nc2003:132519
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    File URL: http://purl.umn.edu/132519
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    References listed on IDEAS

    as
    1. Stokes, Jeffrey R. & Brinch, Brian M., 2001. "Valuing Agricultural Mortgage-Backed Securities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 33(03), December.
    2. Featherstone, Allen M. & Schurle, Bryan W. & Duncan, Steven S. & Postier, Kevin D., 1993. "Clearance Sales In The Farmland Market?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
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    Cited by:

    1. Phillips, Jill & Katchova, Ani L., 2004. "Credit Score Migration Analysis Of Farm Businesses: Conditioning On Business Cycles And Migration Trends," 2004 Annual meeting, August 1-4, Denver, CO 20136, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Zhang, Tianwei & Katchova, Ani L., 2005. "Credit Risk Migration Analysis of Illinois Farm Business: Possible Impacts of Farm Business Cycle," 2005 Annual meeting, July 24-27, Providence, RI 19292, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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