Risk assessment for a Structured Product Specific to the CO2 Emission Permits Market
AbstractThe aim of this work is to use a new modelling technique for CO2 emission prices, in order to estimate the risk associated with a related, structured product. After a short discussion of the specificities of this market, we investigate several modelling methods for CO2 emission prices. We use these results for risk modeling of the swap between two CO2 related instruments : the European Union Allowances and the Certified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models on the risk measure and the allocated capital.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 10054.
Length: 24 pages
Date of creation: Jun 2010
Date of revision:
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Carbon; generalized hyperbolic distribution; value-at-risk; CER; EUA; Swap.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-ENE-2010-07-31 (Energy Economics)
- NEP-ENV-2010-07-31 (Environmental Economics)
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