Barrieu, Pauline 
ORCID: 0000-0001-9473-263X and Fehr, Max
(2011)
Integrated EUA and CER price modeling and application for spread option pricing.
Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment working papers (40).
Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.
|
PDF
Download (777kB) | Preview |
Abstract
In this paper we propose a market consistent futures price dynamics model for cap-andtrade schemes, designed in the spirit of the European Union’s Emissions Trading Scheme (EU ETS). Historical price dynamics for the EU ETS suggest that, both, European emission Allowances (EUAs) and Certified Emission Reductions (CERs), certificates, which are generated through the Clean Development Mechanism (CDM) - a non-domestic offset mechanism - are significantly related. We use an equilibrium framework to demonstrate that compliance regulation singles out special joint futures price dynamics. Based on this result we propose an arbitrage free futures price model and apply it to the pricing of spread options between EUAs and CERs.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Official URL: | http://www2.lse.ac.uk/GranthamInstitute/Home.aspx |
| Additional Information: | © 2011 The Authors |
| Divisions: | Statistics Centre for Analysis of Time Series |
| Subjects: | G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HB Economic Theory |
| JEL classification: | D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting; Environmental Equity |
| Date Deposited: | 25 Jul 2011 13:29 |
| Last Modified: | 11 Dec 2024 19:04 |
| URI: | http://eprints.lse.ac.uk/id/eprint/37576 |
Actions (login required)
 |
View Item |
Download Statistics
Download Statistics