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

Mark Manfredo, Raymond M. Leuthold

Research output: Contribution to journalArticlepeer-review

27 Scopus citations


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
Issue number3
StatePublished - Jun 2001

ASJC Scopus subject areas

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


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