Integrated EUA and CER price modeling and application for spread option pricing
In this paper we propose a market consistent futures price dynamics model for cap-andtrade schemes, designed in the spirit of the European Unionï¿½s Emissions Trading Scheme(EU ETS). Historical price dynamics for the EU ETS suggest that, both, European emission Allowances (EUAs) and Certified Emission Reductions (CERs), certificates, which are generated through the Clean Development Mechanism (CDM) - a non-domestic offset mechanism - are significantly related. We use an equilibrium framework to demonstrate that compliance regulation singles out special joint futures price dynamics. Based on this esult we propose an arbitrage free futures price model and apply it to the pricing of spread options between EUAs and CERs.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/grantham.
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
- 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.
- Carmona, René & Fehr, Max & Hinz, Juri & Porchet, Arnaud, 2010. "Market Design for Emission Trading Schemes," Economics Papers from University Paris Dauphine 123456789/2267, Paris Dauphine University.
When requesting a correction, please mention this item's handle: RePEc:lsg:lsgwps:wp40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The GRI Administration)
If references are entirely missing, you can add them using this form.