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Estimating the 'value at risk' of EUA futures prices based on the extreme value theory

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  • Zhi-Fu Mi
  • Yue-Jun Zhang

Abstract

This paper employs the Extreme Value Theory (EVT) to measure the 'Value at Risk' (VaR) of EUA futures prices. The results show that during the sample period: first, the EVT approach can be used to reliably measure the extreme risk of carbon futures markets of the European Union Emissions Trading Scheme, both for Phase I and Phase II. Second, the downside extreme risk of carbon futures market outweighs the upside risk, with evident asymmetric features. Moreover, the average VaR of carbon futures contract DEC10 proves much less than that of contract DEC07 during the sample period.

Suggested Citation

  • Zhi-Fu Mi & Yue-Jun Zhang, 2011. "Estimating the 'value at risk' of EUA futures prices based on the extreme value theory," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(2/3/4), pages 145-157.
    • Handle: RePEc:ids:ijgeni:v:35:y:2011:i:2/3/4:p:145-157
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    Cited by:

    1. Gong, Xu & Lin, Boqiang, 2017. "Forecasting the good and bad uncertainties of crude oil prices using a HAR framework," Energy Economics, Elsevier, vol. 67(C), pages 315-327.
    2. Jianfeng Guo & Bin Su & Guang Yang & Lianyong Feng & Yinpeng Liu & Fu Gu, 2018. "How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    3. Wesseh, Presley K. & Lin, Boqiang, 2016. "Modeling environmental policy with and without abatement substitution: A tradeoff between economics and environment?," Applied Energy, Elsevier, vol. 167(C), pages 34-43.
    4. Wei, Yi-Ming & Mi, Zhi-Fu & Huang, Zhimin, 2015. "Climate policy modeling: An online SCI-E and SSCI based literature review," Omega, Elsevier, vol. 57(PA), pages 70-84.
    5. Zhi-Fu Mi & Yi-Ming Wei & Bao-Jun Tang & Rong-Gang Cong & Hao Yu & Hong Cao & Dabo Guan, 2017. "Risk assessment of oil price from static and dynamic modelling approaches," Applied Economics, Taylor & Francis Journals, vol. 49(9), pages 929-939, February.
    6. Cui, Qiang & Wei, Yi-Ming & Li, Ye, 2016. "Exploring the impacts of the EU ETS emission limits on airline performance via the Dynamic Environmental DEA approach," Applied Energy, Elsevier, vol. 183(C), pages 984-994.
    7. Yue-Jun Zhang, 2016. "Research on carbon emission trading mechanisms: current status and future possibilities," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 39(1/2), pages 89-107.
    8. Małgorzata Błażejowska & Anna Czarny & Iwona Kowalska & Andrzej Michalczewski & Paweł Stępień, 2025. "The Hedging Strategies of Enterprises in the European Union Allowances Market—Implementation Actions for Sustainable Development," Sustainability, MDPI, vol. 17(5), pages 1-27, February.

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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