Market Risk Measurement and the Cattle Feeding Margin: An Application of Value-at-Risk
Value-at-Risk, known as 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 estimates of VaR such that violations (losses exceeding the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using JP Morgan's Risk Metrics methodology appear robust for instruments that have linear payoff structures such as cash commodity prices.
|Date of creation:||19 Aug 1999|
|Note:||Type of Document - PDF; prepared on IBM PC ; pages: 29 ; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 99-04. For a complete list of OFOR working papers see http://w3.ag.uiuc.edu/ACE/ofor|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hayenga, Marvin L. & Schroeder, Ted C., 1988.
"Comparison of Selective Hedging and Option Strategies in Cattle Feed Lot Risk Management,"
Staff General Research Papers Archive
11313, Iowa State University, Department of Economics.
- 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.
- Anil K. Bera & Philip Garcia & Jae-Sun Roh, 1997. "Estimation of Time-Varying Hedge Ratios for Corn and Soybeans: BGARCH and Random Coefficient Approaches," Finance 9712007, EconWPA.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Linsmeier, Thomas J. & Pearson, Neil D., 1996. "Risk measurement: an introduction to value at risk," ACE Reports 14796, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
- Langemeier, Michael R. & Schroeder, Ted C. & Mintert, James R., 1992.
"Determinants Of Cattle Finishing Profitability,"
Southern Journal of Agricultural Economics,
Southern Agricultural Economics Association, vol. 24(02), December.
- Jose A. Lopez, 1996.
"Regulatory Evaluation of Value-at-Risk Models,"
Center for Financial Institutions Working Papers
96-51, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Thomas J. Linsmeier & Neil D. Pearson, 1996. "Risk Measurement: An Introduction to Value at Risk," Finance 9609004, EconWPA.
- Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
- Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
- Seung-Ryong Yang & B. Wade Brorsen, 1992. "Nonlinear Dynamics of Daily Cash Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 706-715.
- Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-528, June.
- Patricia Jackson & David Maude & William Perraudin, 1998. "Bank Capital and Value at Risk," Bank of England working papers 79, Bank of England.
- Gregory P. Hopper, 1996. "Value at risk: a new methodology for measuring portfolio risk," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 19-31.
- Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 39-69.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9908002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.