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Derivative Pricing and Hedging on Carbon Market

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  • Marius-Cristian Frunza

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Sagacarbon - Sagacarbon SA)

  • Dominique Guegan

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

The aim of this work is to bring an econometric approach upon the CO2 market. We identify the specificities of this market, and analyze the carbon as a commodity. We investigate the econometric particularities of CO2 prices behavior and their result of the calibration. We apprehend and explain the reasons of the non-Gaussian behavior of this market focusing mainly upon jump diffusions and generalized hyperbolic distributions. These models are used for pricing and hedging of carbon options. We estimate the pricing accuracy of each model and the capacity to provide an efficient dynamic hedging.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00461474.

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Date of creation: Jan 2010
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Handle: RePEc:hal:cesptp:halshs-00461474

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Keywords: Carbon; Normal Inverse Gaussian; CER; EUA; swap.;

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