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Credit Risk Models: An Application to Agricultural Lending

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

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.

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File URL: http://purl.umn.edu/132519
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Paper provided by Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition in its series Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri with number 132519.

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Date of creation: 2003
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Handle: RePEc:ags:nc2003:132519
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  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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