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Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition >
Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri >
Please use this identifier to cite or link to this item:
http://purl.umn.edu/132524
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| Title: | Adapting Credit Risk Models to Agriculture |
| Authors: | Zech, Lyubov
Pederson, Glenn D. |
| Keywords: | agricultural credit
value-at-risk
credit risk models
economic capital
portfolio risk
analysis
capital adequacy
portfolio management. |
| Issue Date: | 2003 |
| Abstract: | A framework is identified for modeling credit risk in agriculture. A CreditRisk+ type
model is deemed most suitable for agricultural lending. The CreditRisk+ model is modified to
overcome its drawbacks by incorporating recent research that accounts for sector correlations and
uses a more stable and accurate algorithm. The model is applied to AgStar Financial Services,
ACA, a cooperative agricultural lender, in order to determine how such a lender may adapt this
model for portfolio risk analysis and to make capital and portfolio management decisions. The
model generates a loan loss distribution, which is used to derive the lender’s expected and
unexpected losses for the overall portfolio and individual loans. The model shows that AgStar is
more than adequately capitalized based on the parameters estimated using 1997-2002 data. Since
AgStar’s capital position is lower than that of most other associations, this raises the issue of
overcapitalization within the Farm Credit System. |
| URI: | http://purl.umn.edu/132524 |
| Institution/Association: | Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition >Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003, St. Louis, Missouri |
| Total Pages: | 19 |
| Collections: | Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri
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| File |
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| Zech2003.pdf | | 263Kb | PDF | View/Open |
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