Optimal stochastic control and carbon price formation

Carmona, R; Fehr, M; Hinz, J

Optimal stochastic control and carbon price formation

Carmona, R Fehr, M Hinz, J

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Publication Type:: Journal Article
Citation:: SIAM Journal on Control and Optimization, 2009, 48 (4), pp. 2168 - 2190
Issue Date:: 2009-08-05

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Field	Value	Language
dc.contributor.author	Carmona, R	en_US
dc.contributor.author	Fehr, M	en_US
dc.contributor.author	Hinz, J	en_US
dc.date.issued	2009-08-05	en_US
dc.identifier.citation	SIAM Journal on Control and Optimization, 2009, 48 (4), pp. 2168 - 2190	en_US
dc.identifier.issn	0363-0129	en_US
dc.identifier.uri	http://hdl.handle.net/10453/29269
dc.description.abstract	To meet the targets of the Kyoto Protocol, the European Union established the European Emission Trading Scheme, a mandatory market for carbon emission allowances. This regulatory framework has introduced a market for emission allowances and created a variety of emission-related financial instruments. In this work, we show that the economic mechanism of carbon allowance price formation can be formulated in the framework of competitive stochastic equilibrium models, and we show that its solution reduces to an optimal stochastic control problem. Using this mathematical setup, we identify the main allowance price drivers and show how stochastic control can be used to treat quantitative problems in carbon price risk management. © 2009 Society for Industrial and Applied Mathematics.	en_US
dc.relation.ispartof	SIAM Journal on Control and Optimization	en_US
dc.relation.isbasedon	10.1137/080736910	en_US
dc.subject.classification	Industrial Engineering & Automation	en_US
dc.title	Optimal stochastic control and carbon price formation	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	48	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	0906 Electrical and Electronic Engineering	en_US
utslib.for	0913 Mechanical Engineering	en_US
dc.location.activity	Shanghai, Shanghai, China
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	4	en_US
pubs.publication-status	Published	en_US
pubs.volume	48	en_US

Abstract:

To meet the targets of the Kyoto Protocol, the European Union established the European Emission Trading Scheme, a mandatory market for carbon emission allowances. This regulatory framework has introduced a market for emission allowances and created a variety of emission-related financial instruments. In this work, we show that the economic mechanism of carbon allowance price formation can be formulated in the framework of competitive stochastic equilibrium models, and we show that its solution reduces to an optimal stochastic control problem. Using this mathematical setup, we identify the main allowance price drivers and show how stochastic control can be used to treat quantitative problems in carbon price risk management. © 2009 Society for Industrial and Applied Mathematics.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/29269