The GARCH family models are estimated using price returns. This is the common approach used to model price volatility. The estimated results pertain to food price returns. We estimate the conditional variance of food price returns. My question is can volatility in the food price returns be interpreted as volatility in the corresponding food prices? Please give me your opinions in the context of food price volatility.
Thanks for your comments in advance!
Dear Mr. Hassanzoy,
By volatility in food price returns I suppose you are analysing volatility in price returns over grain futures contracts because according to Arrow-Debreu pricing theory at equilibrium the date,state contingent spot prices (futures prices) that you use to calculate returns are the expected spot prices given all information that is currently available. You can take alook at for e.g. my paper on Markovian General Equilibrium Theory on www.researchgate.net/Soumitra K. Mallick or our Econophysics paper on Insurance Markets (Mallick, Hamburger, Mallick (2016). I hope it helps to clarify your doubts.
Soumitra K. Mallick
for Soumitra K. Mallick, Nick Hamburger, Sandipan Mallick
Dear Najibullah
You can use the volatility in the food price returns for your assessment. This is the same way Value-at-Risk (VaR) is calculated for commodities and other portfolios.
You can look at my paper on commodities, entitled:
Al Janabi, Mazin A. M., “Optimal Commodity Asset Allocation with a Coherent Market Risk Modeling”, Review of Financial Economics, Vol. 21, No. 3, pp. 131-140, 2012. [Publisher: Elsevier, Inc.]
Best Regards
Mazin Al Janabi
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