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Title:Agricultural Applications of Value-at-Risk Analysis: A Perspective
Author(s):Manfredo, Mark R.; Leuthold, Raymond M.
Subject(s):agricultural economics
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.
Issue Date:1998-05
Publisher:Office for Futures and Options Research, Department of Agricultural Economics, College of Agricultural, Consumer, and Environmental Sciences at the University of Illinois at Urbana-Champaign
Series/Report:OFOR Working Paper Series, no. 98-04
Genre:Working / Discussion Paper
Publication Status:published or submitted for publication
Peer Reviewed:not peer reviewed
Date Available in IDEALS:2008-03-18

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