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A comparison of reduced-form permit price models and their empirical performances

  • Georg Grüll
  • Luca Taschini
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    Equilibrium models have been proposed in literature with the aim of describing the evolution of the price of emission permits. This paper derives first a reduced-form model from an equilibrium model and thereby explains how existing reduced-form models are related to equilibrium models. Second, by means of calibration to historical data, it is shown how these reduced-form models perform in the current price-evolution framework also with respect to standard continuous time stochastic models.

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    File URL: http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/02/WP33_permit-price-models.pdf
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    Paper provided by Grantham Research Institute on Climate Change and the Environment in its series GRI Working Papers with number 33.

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    Date of creation: Dec 2010
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    Handle: RePEc:lsg:lsgwps:wp33
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    1. Paolella, Marc S. & Taschini, Luca, 2008. "An econometric analysis of emission allowance prices," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2022-2032, October.
    2. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
    3. repec:cup:cbooks:9780521322249 is not listed on IDEAS
    4. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    5. repec:cup:cbooks:9780521311120 is not listed on IDEAS
    6. Daskalakis, George & Psychoyios, Dimitris & Markellos, Raphael N., 2009. "Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1230-1241, July.
    7. Beat Hintermann, 2009. "An Options Pricing Approach for CO2 Allowances in the EU ETS," CEPE Working paper series 09-64, CEPE Center for Energy Policy and Economics, ETH Zurich.
    8. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
    9. Julien Chevallier & Emilie Alberola, 2009. "Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market," Working Papers halshs-00388071, HAL.
    10. Umut Çetin & Michel Verschuere, 2009. "Pricing And Hedging In Carbon Emissions Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(07), pages 949-967.
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