Please use this identifier to cite or link to this item: https://doi.org/10.1287/mnsc.1110.1358
Title: Risk-neutral models for emission allowance prices and option valuation
Authors: Carmona, R.
Hinz, J. 
Keywords: Cap-and-trade schemes
Emission derivatives
Emissions markets
Environmental finance
Issue Date: Aug-2011
Citation: Carmona, R., Hinz, J. (2011-08). Risk-neutral models for emission allowance prices and option valuation. Management Science 57 (8) : 1453-1468. ScholarBank@NUS Repository. https://doi.org/10.1287/mnsc.1110.1358
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.
Source Title: Management Science
URI: http://scholarbank.nus.edu.sg/handle/10635/104065
ISSN: 00251909
DOI: 10.1287/mnsc.1110.1358
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