Measurement of the Fluctuation Risk of the China Fruit Market Price based on VaR

Abstract

Abstract The price fluctuation risk of agricultural products has become one of the main risks faced by agricultural producers. The objective of implementing market risk management is to measure and assess accurately the sizes and degrees of risk involving agricultural products. In this paper, measurement and analysis of fruit market price risk were conducted on fruit species such as Fuji apple, orange, banana, pear, grape, watermelon and strawberry, using the VaR method. Empirical results show that normal distribution is not the optimal distribution model that can be applied in assessing fruit market risk. This is because different fruits have different degrees of market risk (i.e., strawberries and watermelons are fruits with high risk levels; apples, bananas and pears have relatively low risk levels; and grapes and oranges have middle risk levels). According to the results, fruits that belong to the same market risk level have similar features. It is thus necessary to conduct fruit market risk management with risk monitoring by classifying different types of produce as a single unit. This ensures efficiency and accuracy and reduces substantially the cost of market risk management.