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

  • Georg Gr�ll
  • Luca Taschini

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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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. 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.
  3. Umut Cetin & Michel Verschuere, 2009. "Pricing and hedging in carbon emissions markets," LSE Research Online Documents on Economics 29321, London School of Economics and Political Science, LSE Library.
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  5. 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.
  6. repec:cup:cbooks:9780521322249 is not listed on IDEAS
  7. Marc Chesney & Luca Taschini, 2008. "The Endogenous Price Dynamics of the Emission Allowances: An Application to CO2 Option Pricing," Swiss Finance Institute Research Paper Series 08-01, Swiss Finance Institute, revised Jan 2008.
  8. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
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