Measuring Price Risk on UK Arable Farms

Ben White and P. J. Dawson

Journal of Agricultural Economics, 2005, vol. 56, issue 2, 239-252

Abstract: Price risk is estimated for a representative UK arable farm using value‐at‐risk (VaR). To determine the distribution of commodity returns, two multivariate generalised autoregressive conditional heteroscedasticity (GARCH) models, with t‐distributed and normally distributed errors, and a RiskMetricsTM model are estimated. Returns show excess kurtosis and that the GARCH model with t‐distributed errors fits best. Estimates of VaR differ between models: both GARCH models perform well but the RiskMetricsTM model underestimates expected losses. UK arable farms face substantial price risk.

Date: 2005
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