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A Comparison of Reduced-Form Permit Price Models and their Empirical Performances

  • Georg Grüll
  • 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 _rst estimation methods for the calibration of three competing equilibrium models. Second, it demonstrates how their reduced-form versions are inter-related. Third, 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 Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0918.

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Date of creation: Sep 2009
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Handle: RePEc:mee:wpaper:0918
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  1. repec:cup:cbooks:9780521322249 is not listed on IDEAS
  2. Alberola, Emilie & Chevallier, Julien, 2009. "Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market," Economics Papers from University Paris Dauphine 123456789/4599, Paris Dauphine University.
  3. 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.
  4. 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.
  5. 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.
  6. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  7. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
  8. 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.
  9. repec:cup:cbooks:9780521311120 is not listed on IDEAS
  10. 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.
  11. 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.
  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. 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.
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