Estimation of VaR with jump process: application in corn and soybean markets

Minglian Lin, Indranil SenGupta and William Wilson

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Abstract: Value at Risk (VaR) is a quantitative measure used to evaluate the risk linked to the potential loss of investment or capital. Estimation of the VaR entails the quantification of prospective losses in a portfolio of investments, using a certain likelihood, under normal market conditions within a specific time period. The objective of this paper is to construct a model and estimate the VaR for a diversified portfolio consisting of multiple cash commodity positions driven by standard Brownian motions and jump processes. Subsequently, a thorough analytical estimation of the VaR is conducted for the proposed model. The results are then applied to two distinct commodities -- corn and soybean -- enabling a comprehensive comparison of the VaR values in the presence and absence of jumps.

Date: 2023-11, Revised 2024-06
New Economics Papers: this item is included in nep-ecm and nep-rmg
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Published in Applied Stochastic Models in Business and Industry, 2024

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