An approach to the estimation of convenience yields and prices of agricultural commodity futures in Colombia

Abstract

To date, Colombia lacks a sufficiently developed commodity market that allows estimating prices of agricultural commodity futures. Nonetheless, it is possible to estimate price bands within which they are likely to oscillate if certain no-arbitrage conditions are fulfilled. Based on the work of Díaz and Venegas, convenience yields are further incorporated, thus allowing the evaluation of eventual government policies and other market factors on the price of future contracts. The applicability of this new model is shown with an example regarding palm oil. This methodology can be applied to any other similar market.