Extreme Measures of Agricultural Financial Risk

40 Pages Posted: 6 Dec 2009

See all articles by John Cotter

John Cotter

University College Dublin; University of California, Los Angeles (UCLA) - Anderson School of Management

Kevin Dowd

Nottingham University Business School (NUBS)

C. W. Morgan

University of Nottingham

Date Written: October 6, 2008

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

JEL Classification: E17, G19, N52

Suggested Citation

Cotter, John and Dowd, Kevin and Morgan, Christopher Wyn, Extreme Measures of Agricultural Financial Risk (October 6, 2008). Available at SSRN: https://ssrn.com/abstract=1517192 or http://dx.doi.org/10.2139/ssrn.1517192

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Christopher Wyn Morgan

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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