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Energy Risk Management with Carbon Assets

Author

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  • Julien Chevallier

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article proposes a mean-variance optimization and portfolio frontier analysis of energy risk management with carbon assets, introduced in January 2005 as part of the EU Emissions Trading Scheme. In a stylized exercise, we compute returns, standard deviations and correlations for various asset classes from April 2005 to January 2009. Our central result features an expected return of 3% with a standard deviation

Suggested Citation

  • Julien Chevallier, 2009. "Energy Risk Management with Carbon Assets," Working Papers halshs-00410059, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00410059
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00410059
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    File URL: https://halshs.archives-ouvertes.fr/halshs-00410059/document
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    Cited by:

    1. Panagiotis G. Papaioannou & George P. Papaioannou & Kostas Siettos & Akylas Stratigakos & Christos Dikaiakos, 2017. "Dynamic Conditional Correlation between Electricity and Stock markets during the Financial Crisis in Greece," Papers 1708.07063, arXiv.org.
    2. Wen, Xiaoqian & Bouri, Elie & Roubaud, David, 2017. "Can energy commodity futures add to the value of carbon assets?," Economic Modelling, Elsevier, vol. 62(C), pages 194-206.
    3. Julien Chevallier, 2013. "Carbon trading: past, present and future," Chapters,in: Handbook on Energy and Climate Change, chapter 21, pages 471-489 Edward Elgar Publishing.
    4. Reboredo, Juan C., 2013. "Modeling EU allowances and oil market interdependence. Implications for portfolio management," Energy Economics, Elsevier, vol. 36(C), pages 471-480.
    5. Cristiana Tudor, 2016. "Predicting the Evolution of CO 2 Emissions in Bahrain with Automated Forecasting Methods," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-10, September.
    6. Anne Schopp & Karsten Neuhoff, 2013. "The Role of Hedging in Carbon Markets," Discussion Papers of DIW Berlin 1271, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Mean-variance optimization; Portfolio frontier analysis; CAPM; CO2; Carbon; Energy; Bonds; Equity; Asset Management; EU ETS; CERs;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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