On agricultural commodities’ extreme price risk

Maarten R.C. van Oordt, Philip A. Stork*, Casper G. de Vries

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We show how fat tails in agricultural commodity returns arise endogenously from productivity shocks in a standard macroeconomic model. Using nearly ninety years of data, we show that the eight agricultural commodities in our sample exhibit fat-tailed return distributions. Statistical tests confirm the heavy-tailedness of price spikes for agricultural commodities. We apply extreme value theory to estimate the size and likelihood of price spikes in agricultural commodities. Back-testing verifies the validity of our risk assessment methodology.
Original languageEnglish
Pages (from-to)531-563
JournalExtremes
Volume24
Issue number3
DOIs
Publication statusPublished - 2021

Bibliographical note

Publisher Copyright:
© 2021, The Author(s).

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Keywords

  • 60G70
  • 62G32
  • Commodity prices
  • Extreme value theory
  • Heavy tails
  • Risk management

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