Market risk and the cattle feeding margin: An application of Value-at-Risk

Mark Manfredo, Raymond M. Leuthold

Research output: Contribution to journalArticle

22 Citations (Scopus)

Abstract

Value-at-Risk, known as VaR, gives a prediction with a certain level of confidence of potential portfolio losses that may be encountered over a specified time period due to adverse price movements in the portfolio’s assets. For example, a VaR of 1 million dollars at the 95% level of confidence implies that overall portfolio losses should not exceed 1 million dollars more than 5% of the time over a given holding period. This research examines the effectiveness of VaR measures, developed using alternative estimation techniques, in predicting large losses in the cattle-feeding margin. Results show that several estimation techniques, both parametric and nonparametric, provide well-calibrated estimates of VaR such that violations (losses exceeding the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using the RiskMetrics™ method appear robust for instruments that have linear payoff structures such as cash commodity prices.

Original languageEnglish (US)
Pages (from-to)333-353
Number of pages21
JournalAgribusiness
Volume17
Issue number3
DOIs
StatePublished - Jan 1 2001

Fingerprint

cattle feeding
cattle
confidence
estimation procedure
markets
dollar
market
commodity prices
Values
assets
commodity price
commodity
methodology
Research
prediction
loss
Cattle
Value at risk
Margin
Market risk

ASJC Scopus subject areas

  • Food Science
  • Geography, Planning and Development
  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

Cite this

Market risk and the cattle feeding margin : An application of Value-at-Risk. / Manfredo, Mark; Leuthold, Raymond M.

In: Agribusiness, Vol. 17, No. 3, 01.01.2001, p. 333-353.

Research output: Contribution to journalArticle

Manfredo, Mark ; Leuthold, Raymond M. / Market risk and the cattle feeding margin : An application of Value-at-Risk. In: Agribusiness. 2001 ; Vol. 17, No. 3. pp. 333-353.
@article{4d89f343df7c404e8e3272f9d00f2914,
title = "Market risk and the cattle feeding margin: An application of Value-at-Risk",
abstract = "Value-at-Risk, known as VaR, gives a prediction with a certain level of confidence of potential portfolio losses that may be encountered over a specified time period due to adverse price movements in the portfolio’s assets. For example, a VaR of 1 million dollars at the 95{\%} level of confidence implies that overall portfolio losses should not exceed 1 million dollars more than 5{\%} of the time over a given holding period. This research examines the effectiveness of VaR measures, developed using alternative estimation techniques, in predicting large losses in the cattle-feeding margin. Results show that several estimation techniques, both parametric and nonparametric, provide well-calibrated estimates of VaR such that violations (losses exceeding the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using the RiskMetrics™ method appear robust for instruments that have linear payoff structures such as cash commodity prices.",
author = "Mark Manfredo and Leuthold, {Raymond M.}",
year = "2001",
month = "1",
day = "1",
doi = "10.1002/agr.1020",
language = "English (US)",
volume = "17",
pages = "333--353",
journal = "Agribusiness",
issn = "0742-4477",
publisher = "Wiley-VCH Verlag",
number = "3",

}

TY - JOUR

T1 - Market risk and the cattle feeding margin

T2 - An application of Value-at-Risk

AU - Manfredo, Mark

AU - Leuthold, Raymond M.

PY - 2001/1/1

Y1 - 2001/1/1

N2 - Value-at-Risk, known as VaR, gives a prediction with a certain level of confidence of potential portfolio losses that may be encountered over a specified time period due to adverse price movements in the portfolio’s assets. For example, a VaR of 1 million dollars at the 95% level of confidence implies that overall portfolio losses should not exceed 1 million dollars more than 5% of the time over a given holding period. This research examines the effectiveness of VaR measures, developed using alternative estimation techniques, in predicting large losses in the cattle-feeding margin. Results show that several estimation techniques, both parametric and nonparametric, provide well-calibrated estimates of VaR such that violations (losses exceeding the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using the RiskMetrics™ method appear robust for instruments that have linear payoff structures such as cash commodity prices.

AB - Value-at-Risk, known as VaR, gives a prediction with a certain level of confidence of potential portfolio losses that may be encountered over a specified time period due to adverse price movements in the portfolio’s assets. For example, a VaR of 1 million dollars at the 95% level of confidence implies that overall portfolio losses should not exceed 1 million dollars more than 5% of the time over a given holding period. This research examines the effectiveness of VaR measures, developed using alternative estimation techniques, in predicting large losses in the cattle-feeding margin. Results show that several estimation techniques, both parametric and nonparametric, provide well-calibrated estimates of VaR such that violations (losses exceeding the VaR estimate) are commensurate with the desired level of confidence. In particular, estimates developed using the RiskMetrics™ method appear robust for instruments that have linear payoff structures such as cash commodity prices.

UR - http://www.scopus.com/inward/record.url?scp=25144441290&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=25144441290&partnerID=8YFLogxK

U2 - 10.1002/agr.1020

DO - 10.1002/agr.1020

M3 - Article

AN - SCOPUS:25144441290

VL - 17

SP - 333

EP - 353

JO - Agribusiness

JF - Agribusiness

SN - 0742-4477

IS - 3

ER -