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Market Risk Measurement and the Cattle Feeding Margin: An Application of Value-at-Risk

Paper:ewp-fin/9908002
From:    
Date: Thu, 19 Aug 1999 15:32:20 -0500 (CDT)

Title: Market Risk Measurement and the Cattle Feeding Margin: An Application of Value-at-Risk
Author: Mark R. Manfredo. (Arizona State University) and Raymond M. Leuthold (University of Illinois at Urbana-Champaign)
Contact:
Comments: Type of Document - PDF; prepared on IBM PC ; pages: 29 ; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 99-04. For a complete list of OFOR working papers see http://w3.ag.uiuc.edu/ACE/ofor
Keywords:
JEL:
EWPA-references:
Report-no: OFOR-99-04

Abstract:

Value-at-Risk, known as VaR, gives a prediction of potential portfolio losses, with a certain level of confidence, 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 non-parametric, 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 JP Morgan's Risk Metrics methodology appear robust for instruments that have linear payoff structures such as cash commodity prices.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

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A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006