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Agricultural Applications of Value-at-Risk Analysis: A Perspective

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  • Manfredo, Mark R.
  • Leuthold, Raymond M.

Abstract

Value-at-risk (VaR) determines the probability of a portfolio of assets losing a certain amount in a given time period due to adverse market conditions with a particular level of confidence. Value-at-Risk has received considerable attention from financial economists and financial practitioners for its use in risk reporting, in particular the risks of derivatives. This paper provides a "state-of-the-art" review of VaR estimation techniques and empirical findings found in the finance literature. The ability of VaR estimates to represent large losses associated with tail events varies among procedure, confidence level, and data used. To date, there is no consensus to the most appropriate estimation technique. Potential applications of Value-at-Risk are suggested in the context of agricultural risk management. In the wake of the Hedge-to-Arrive crisis, the lifting of agricultural trade options by the CFTC, and the decreased government participation, VaR seems to have a place in the agricultural risk manager's toolkit.

Suggested Citation

  • Manfredo, Mark R. & Leuthold, Raymond M., 1998. "Agricultural Applications of Value-at-Risk Analysis: A Perspective," 1981-1999 Conference Archive 285734, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nc8191:285734
    DOI: 10.22004/ag.econ.285734
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    References listed on IDEAS

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    Cited by:

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    4. Giot, Pierre & Laurent, Sebastien, 2003. "Market risk in commodity markets: a VaR approach," Energy Economics, Elsevier, vol. 25(5), pages 435-457, September.

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