HEDGING EFFECTIVENESS ASSESSMENT VIA VALUE-AT-RISK (VAR) AND CONDITIONAL VAR: AN EMPIRICAL INVESTIGATION FOR THE BRAZILIAN MANGO AND GRAPE EXPORTS

Abstract

The aim of this paper was to identify the hedge effectiveness of hypothetical future contracts for the Brazilian mango and grape exports via Value-at-Risk (VaR) and Conditional VaR hedging approaches. To this end, it was used two nonparametric models: the Historical Simulation and the Kernel Distribution. It was collected 300 monthly average mango and grape prices US$ FOB/kg, between 1989 and 2013, from the site Comex Stat. As benchmarking model, it was also used the Minimum-Variance approach since it is widely employed by hedgers. The results showed that a variance reduction does not imply a VaR/CVaR reduction, and when it occurs, it does not happen in the same way. On the other hand, in general, the Minimum-CVaR via the Kernel method improve the reduction in portfolio’s VaR, CVaR, and variance when compared with the Minimum-Variance approach, with a smaller optimal hedge ratio. For mango, the contract with maturity at five months had the largest CVaR reduction in the validation sample, while for grape, the largest CVaR reduction occurred with maturity at four months.