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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 EU ETS, 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, 2010. "Estimating the 'value at risk' of EUA futures prices based on the extreme value theory," CEEP-BIT Working Papers 9, Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology.
  • Handle: RePEc:biw:wpaper:9
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    References listed on IDEAS

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    3. 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, Open Access Journal, vol. 10(9), pages 1-17, September.
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    6. 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.

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    More about this item

    Keywords

    EU ETS; Extreme Value Theory (EVT); Value at Risk (VaR); Carbon Market;
    All these keywords.

    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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