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Agricultural Finance Markets in Transition: Credit Risk Models: An Application to Agricultural Lending

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  • Katchova, Ani L.
  • Barry, Peter J.

Abstract

Credit risk models are developed and used to estimate capital requirements for agricultural lenders under the New Basel Capital Accord. The theoretical models combine Merton’s distance-to-default approach with credit value-at-risk methodologies. Two applied models, CreditMetrics and KMV, are illustrated using farm financial data. Expected and unexpected losses for a portfolio of farms are calculated using probability of default, loss given default, and portfolio risk measures. The results show that credit quality and correlations among farms play a significant role in risk pricing for agricultural lenders.

Suggested Citation

  • Katchova, Ani L. & Barry, Peter J., 2004. "Agricultural Finance Markets in Transition: Credit Risk Models: An Application to Agricultural Lending," Research Bulletins 301259, Cornell University, Department of Applied Economics and Management.
    • Handle: RePEc:ags:cudarb:301259
    DOI: 10.22004/ag.econ.301259
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    Keywords

    Agricultural Finance;

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