Extreme measures of agricultural financial risk

John Cotter, Kevin Dowd and Wyn Morgan

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: Risk is an inherent feature of agricultural production and marketing and accurate measurement of it helps inform more efficient use of resources. This paper examines three tail quantile-based risk measures applied to the estimation of extreme agricultural financial risk for corn and soybean production in the US: Value at Risk (VaR), Expected Shortfall (ES) and Spectral Risk Measures (SRMs). We use Extreme Value Theory (EVT) to model the tail returns and present results for these three different risk measures using agricultural futures market data. We compare the estimated risk measures in terms of their size and precision, and find that they are all considerably higher than normal estimates; they are also quite uncertain, and become more uncertain as the risks involved become more extreme.

Keywords: Agricultural financial risk; Spectral risk measures; Expected Shortfall; Value at Risk; Extreme Value Theory; Agriculture--Finance--United States; Risk--Econometric models; Extreme value theory (search for similar items in EconPapers)
JEL-codes: E17 G19 N52 (search for similar items in EconPapers)
Date: 2008-10
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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1690

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