Carbon emission permit price volatility reduction through financial options
| Autor: | Valerie M. Thomas, Shi-Jie Deng, Li Xu |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Economics and Econometrics
Stylized fact Spot contract Financial economics business.industry 020209 energy Emission abatement 02 engineering and technology Implied volatility General Energy 0202 electrical engineering electronic engineering information engineering Economics Volatility smile Volatility (finance) business Financial options Risk management |
| Zdroj: | Energy Economics. 53:248-260 |
| ISSN: | 0140-9883 |
| DOI: | 10.1016/j.eneco.2014.06.001 |
| Popis: | We develop a stylized model to investigate the impact of financial options on reducing carbon permit price volatility under a cap-and-trade system. The existence of an option market provides a mechanism to hedge the uncertainty of future spot prices and is a stimulus for investment in carbon emission abatement technologies. We show that both the spot price level and the price volatility of carbon permits can be reduced via the trading of financial options, while achieving the emission reduction target. We also show that introducing financial options in a banking environment offers more flexibility to risk management in carbon permit trading. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|
Full Text from ScienceDirect