Location of Repository

Multi-Period Asset Allocation: An Application of Discrete Stochastic Programming

By Ryan A. Larsen, David J. Leatham and Dmitry V. Vedenov


The issue of modeling farm financial decisions in a dynamic framework is addressed in this paper. Discrete stochastic programming is used to model the farm portfolio over the planning period. One of the main issues of discrete stochastic programming is representing the uncertainty of the data. The development of financial scenario generation routines provides a method to model the stochastic nature of the model. In this paper, two approaches are presented for generating scenarios for a farm portfolio problem. The approaches are based on copulas and optimization. The copula method provides an alternative to the multivariate normal assumption. The optimization method generates a number of discrete outcomes which satisfy specified statistical properties by solving a non-linear optimization model. The application of these different scenario generation methods is then applied to the topic of geographical diversification. The scenarios model the stochastic nature of crop returns and land prices in three separate geographic regions. The results indicate that the optimal diversification strategy is sensitive to both scenario generation method and initial acreage assumptions. The optimal diversification results are presented using both scenario generation methods.Agribusiness, Agricultural Finance, Farm Management,

OAI identifier:
Downloaded from http://purl.umn.edu/61509

Suggested articles



  1. (1999). A Dynamic Analysis of Land Prices."
  2. (2009). A Stochastic Dynamic Programming Analysis of Farmland Investment and Financial Management."
  3. (2008). Application of Copulas to Estimation of Joint Crop Yield Distributions." Paper presented at AAEA annual meeting, Orlando FL,
  4. (2002). Applications of Copula Theory in Financial Econometrics."
  5. (2005). Applications of Copula-Based Models in Portfolio Optimization." Dissertation,
  6. (1999). Are Crop Yields Normally Distributed?"
  7. (2005). Copula Modeling: An Introduction for Practitioners." Foundations and Trends in
  8. (2000). Copulas in Financial Risk Management." Unviversity of Oxford.
  9. (1999). Correlations and Copulas for Decision and Risk Analsysis."
  10. (1971). Decision Problems in Farm Management."
  11. (1968). Discrete Stochastic Programming."
  12. (2006). Dynamic Asset Allocation Strategies Using a Stochastic Dynamic Programming Approach.
  13. (1996). Dynamic Nonmyopic Portfolio Behavior."
  14. (1992). Efficient Handling of Probability Information for Decision Analysis under Risk."
  15. (2009). Estate Center,
  16. (2007). Evaluation of Scenario-Generation Methods for Stochastic Programming."
  17. (1988). Farmer's Choice of Fixed and Adjustable Interest Rate Loans."
  18. (1981). Farmer's Credit Risks and Liquidity Management."
  19. (2004). Financial Planning Via Multi-Stage Stochastic Optimization."
  20. (1959). Fonction de Repartiton a n Dimensions et Leurs Marges." Publications de I'Institut de Statistique de L'Universite de
  21. (1999). Managing Risk in Farming: Concepts,
  22. (2003). Modeling Conditional Yield Densities."
  23. (2008). Modeling Dependence in the Design of Whole Farm---A Copula-Based Model Approach." Paper presented at AAEA annual meeting, Orlando FL,
  24. (2002). Modeling Price and Yield Risk,
  25. (1990). Modelling Farm Financial Decisions in a Dynamic and Stochastic Environment."
  26. (2006). Multi-Period Stochastic Optimization Models for Dynamic Asset Allocation."
  27. (1997). Multivariate Models and Dependence Concepts. Monographs on Statistics and Probability. Edited by
  28. (2008). National Agriculture Statistics Service/State Facts/County Facts. Internet Site: www.nass.usda.gov/QuickStats/ (Accessed
  29. (2000). Non-Parametric and Semi-Parametric Techniques for Modeling and Simulating Correlated, Non-Normal Price and Yield Distributions: Applications to Risk Analysis in Kansas Agriculture."
  30. (1998). Nonparametric Estimation of Crop Yield Distributions: Implications for Rating Group-Risk Crop Insurance Contracts."
  31. (1998). Numerical Methods in Economics.
  32. (2008). Pricing Options on Scenario Trees."
  33. (1990). Returns to Limited Crop Diversification."
  34. (1989). Sequential Modeling of White Wheat Marketing Strategies."
  35. (2009). Shape-Based Scenario Generation Using Copulas."
  36. (1986). Testing for Nonnormality in Farm Net Returns."
  37. (1978). The Tradeoff Between Expected Return and Risk Among Cornbelt Farmers."
  38. (2002). The Use of Archimedean Copulas to Model Portfolio Allocations."
  39. (1976). Time Series Analysis: Forecasting and Control. Revised ed.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.