Risk-neutral models for emission allowance prices and option valuation

Carmona, R; Hinz, J

Risk-neutral models for emission allowance prices and option valuation

Carmona, R Hinz, J

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Publication Type:: Journal Article
Citation:: Management Science, 2011, 57 (8), pp. 1453 - 1468
Issue Date:: 2011-08-01

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Field	Value	Language
dc.contributor.author	Carmona, R	en_US
dc.contributor.author	Hinz, J	en_US
dc.date.issued	2011-08-01	en_US
dc.identifier.citation	Management Science, 2011, 57 (8), pp. 1453 - 1468	en_US
dc.identifier.issn	0025-1909	en_US
dc.identifier.uri	http://hdl.handle.net/10453/29179
dc.description.abstract	The existence of mandatory emission trading schemes in Europe and the United States, and the increased liquidity of trading on futures contracts on CO2 emissions allowances, led naturally to the next step in the development of these markets: These futures contracts are now used as underliers for a vibrant derivative market. In this paper, we give a rigorous analysis of a simple risk-neutral reduced-form model for allowance futures prices, demonstrate its calibration to historical data, and show how to price European call options written on these contracts. © 2011 INFORMS.	en_US
dc.relation.ispartof	Management Science	en_US
dc.relation.isbasedon	10.1287/mnsc.1110.1358	en_US
dc.subject.classification	Operations Research	en_US
dc.title	Risk-neutral models for emission allowance prices and option valuation	en_US
dc.type	Journal Article
utslib.citation.volume	8	en_US
utslib.citation.volume	57	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	08 Information and Computing Sciences	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.issue	8	en_US
pubs.publication-status	Published	en_US
pubs.volume	57	en_US

Abstract:

The existence of mandatory emission trading schemes in Europe and the United States, and the increased liquidity of trading on futures contracts on CO2 emissions allowances, led naturally to the next step in the development of these markets: These futures contracts are now used as underliers for a vibrant derivative market. In this paper, we give a rigorous analysis of a simple risk-neutral reduced-form model for allowance futures prices, demonstrate its calibration to historical data, and show how to price European call options written on these contracts. © 2011 INFORMS.

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http://hdl.handle.net/10453/29179