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An economic view of carbon allowances market

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  • Marius-Cristian Frunza

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Sagacarbon - Sagacarbon SA)

  • Dominique Guegan

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

Abstract

The aim of this work is to bring an econometric approach upon the CO2 market. We identify the specificities of this market, and regarding 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 diffusion and generalized hyperbolic distributions. We test these results for the risk modeling of a structured product specific to the carbon market, the swap between two carbon instruments : The European Union Allowances and the Certiified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models upon the risk measure and the allocated capital.

Suggested Citation

  • Marius-Cristian Frunza & Dominique Guegan, 2009. "An economic view of carbon allowances market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00390676, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00390676
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00390676
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    Keywords

    swap; Carbon; Normal Inverse Gaussian; CER; EUA; swap.; Carbone; distribution NIG;

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