Risk-neutral models for emission allowance prices and option valuation

Management Science

Volumn 57, Issue 8, 2011, Pages 1453-1468

  Carmona, René ^a   Hinz, Juri ^b  

^a Princeton University   (United States)

^b NATIONAL UNIVERSITY OF SINGAPORE   (Singapore)

Author keywords

Cap and trade schemes; Emission derivatives; Emissions markets; Environmental finance

Indexed keywords

CAP-AND-TRADE SCHEMES; EMISSION ALLOWANCES; EMISSION TRADING SCHEME; ENVIRONMENTAL FINANCE; FUTURES CONTRACT; HISTORICAL DATA; OPTION VALUATION; RIGOROUS ANALYSIS;

CARBON DIOXIDE; COMMERCE;

CONTRACTS;

EID: 80051634402     PISSN: 00251909     EISSN: 15265501     Source Type: Journal    
DOI: 10.1287/mnsc.1110.1358     Document Type: Article

References (27)

1. Aït-Sahalia, Y. 2002. Maximum likelihood estimation of discretely sampled diffusions:A closed-form approximation approach. Econometrica 70(1) 223-262. (Pubitemid 34288244)
2. 2 emission allowances. Energy Econom. 31(1) 4-15.
3. Carmona, P., F. Petit, M. Yor. 2001. Exponential functionals of Lévy processes. O. E.Barndorff-Nielsen, T. Mikosch, S. I. Resnick, eds. Lévy Processes: Theory and Applications. Birkhaüser Boston, New York, 41-56.
4. Carmona, R., M. Fehr, J. Hinz. 2008. Properly designed emissions trading schemes do work! Technical report, Princeton University, Princeton, NJ.
5. Carmona, R., M. Fehr, J. Hinz. 2009. Optimal stochastic control and carbon price formation. SIAM J. Control Optim. 48(12) 2168-2190.
6. Carmona, R., M. Fehr, J. Hinz, A. Porchet. 2010. Market design for emission trading schemes. SIAM Rev. 52(3) 403-452.
7. Cetin, U., M. Verschuere. 2010. Pricing and hedging in carbon emissions markets. Internat. J. Theoretical Appl. Finance 12(7) 949-967.
8. 2 option pricing. Swiss Finance Institute Research Paper 08-02, Swiss Finance Institute, Zurich.
9. Cronshaw, M., J. B. Kruse. 1996. Regulated firms in pollution permit markets with banking. J. Regulatory Econom. 9(2) 179-189. (Pubitemid 126724162)
10. Dales, J. H. 1968. Pollution, Property and Prices. University of Toronto Press, Toronto.
11. 2 emission allowance prices and derivatives: Evidence from the European trading scheme. J. Banking and Finance 31 3584-3603.
12. Karatzas, I., S. E. Shreve. 1991. Brownian Motion and Stochastic Calculus, 2nd ed. Springer, New York.
13. Karlin, S., H. Taylor. 1981. A Second Course in Stochastic Processes. Academic Press, New York.
14. Leiby, P., J. Rubin. 2001. Intertemporal permit trading for the control of greenhouse gas emissions. Environ. Resource Econom. 19(3)
15. Maeda, A. 2004. Impact of banking and forward contracts on tradable permit markets. Environ. Econom. Policy Stud. 6(2) 81-102.
16. Montgomery, W. D. 1972. Markets in licenses and efficient pollution control programs. J. Econom. Theory 5(3) 395-418.
17. Paolella, M. S., L. Taschini. 2008. An econometric analysis of emissions trading allowances. J. Banking Finance 32 2022-2032.
18. Rubin. J. 1996. A model of intertemporal emission trading, banking and borrowing. J.Environ. Econom. Management 31(3) 269-286. (Pubitemid 27012535)
19. Schennach. S. M. 2000. The economics of pollution permit banking in the context of Title IV of the 1990 Clean Air Act amendments. J. Environ. Econom. Management 40(3) 189-210.
20. Seifert, J., M. Uhrig-Homburg, M. Wagner. 2008. Dynamic behavior of carbon spot prices theory and empirical evidence. J. Environ. Econom. Management 56(2) 180-194.
21. 2 cost pass-through and windfall profits in the power sector. Climate Policy 6(1) 49-72. (Pubitemid 44275604)
22. Stevens, B., A. Rose. 2002. A dynamic analysis of the marketable permits approach toglobal warming policy: A comparison of spatial and temporal flexibility. J. Environ. Econom. Management 44(1) 45-69. (Pubitemid 34973726)
23. Tehranchi, M. R. 2009. The joint distribution of exponential Lévy functionals. Technical report, Centre for Mathematical Sciences, Cambridge, UK.
24. Tietenberg, T. 1985. Emissions Trading: An Exercise in Reforming Pollution Policy. Resources for the Future, Boston.
25. Uhrig-Homburg, M., M. Wagner. 2008. Derivative instruments in the EU emission trading scheme-An early market perspective. Energy Environ. 19(5) 635-655.
26. 2 emission allowances: An empirical analysis of the trial period. J. Derivatives 17(2) 73-88.
27. Wagner, M. 2006. Emissionszertifikate, preismodellierung und derivatebewertung. Ph.D. thesis, Universität Karlsruhe, Karlsruhe, Germany.