Air pollution option pricing model based on AQI
| Autor: | Qin Wang, Deqiang Li, Yan Xu, Chenchen Wang, Jian Xue, Zeeshan Rasool, Laijun Zhao, Mingming Ni |
|---|---|
| Rok vydání: | 2019 |
| Předmět: |
Atmospheric Science
Index (economics) 010504 meteorology & atmospheric sciences 020209 energy Air pollution 02 engineering and technology Black–Scholes model medicine.disease_cause 01 natural sciences Pollution Product (business) 0202 electrical engineering electronic engineering information engineering medicine Derivatives market Econometrics Environmental science Binomial options pricing model Hedge (finance) Waste Management and Disposal Air quality index 0105 earth and related environmental sciences |
| Zdroj: | Atmospheric Pollution Research. 10:665-674 |
| ISSN: | 1309-1042 |
| DOI: | 10.1016/j.apr.2018.10.011 |
| Popis: | Air pollution severely impacts various social and economic sectors, underscoring the importance of a financial air quality derivatives market. This article focuses on designing an Air quality index (AQI) options contract, employing financial derivatives to hedge against air pollution risks. Next, the AQI day values are used to establish an Ornstein-Uhlenbeck (O-U) mean recovery model, from October 28, 2013 to May 31, 2017, in Shijiazhuang. Accounting for variation of the sequence over time, we obtain significant seasonal fluctuations and variances in the AQI data, used in estimating the model parameters. Finally, under the risk-neutral principle, three types of ADI index options contracts, with different maturities, are simulated, with pricing derived through the binomial tree model. Results show: the O-U model time series can improve accuracy when forecasting AQI changes. The use of a new binomial tree model can reasonably price derivatives of air quality. The AQI based air pollution option product, described in this paper, can hedge operating risks for companies in industries that are seriously affected by air pollution. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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