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Measuring price risk on UK arable farms

Lookup NU author(s): Dr Benedict White, Dr Philip Dawson

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Abstract

Price risk is estimated for a representative UK arable farm using value-at-risk (VaR). To determine the distribution of commodity returns, two multivariate generalised autoregressive conditional heteroscedasticity (GARCH) models, with t-distributed and normally distributed errors, and a RiskMetrics™ model are estimated. Returns show excess kurtosis and that the GARCH model with t-distributed errors fits best. Estimates of VaR differ between models: both GARCH models perform well but the RiskMetrics™ model underestimates expected losses. UK arable farms face substantial price risk. © Blackwell Publishing Ltd. 2005.

Publication metadata

Author(s): White B, Dawson PJ

Publication type: Article

Publication status: Published

Journal: Journal of Agricultural Economics

Year: 2005

Volume: 56

Issue: 2

Pages: 239-252

ISSN (print): 0021-857X

ISSN (electronic): 1477-9552

Publisher: Wiley-Blackwell Publishing Ltd.

URL: http://dx.doi.org/10.1111/j.1477-9552.2005.00002.x

DOI: 10.1111/j.1477-9552.2005.00002.x

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