Carbon emission permit price volatility reduction through financial options

被引:34
|
作者
Xu, Li [1 ]
Deng, Shi-Jie [1 ]
Thomas, Valerie M. [1 ,2 ]
机构
[1] Georgia Inst Technol, H Milton Stewart Sch Ind & Syst Engn, 765 Ferst Dr NW, Atlanta, GA 30332 USA
[2] Georgia Inst Technol, Sch Publ Policy, 685 Cheny St, Atlanta, GA 30332 USA
关键词
Carbon permit trading; Financial options; Volatility mitigation; Emission permit pricing; MARKETS; BANKING; DERIVATIVES; BEHAVIOR; STOCK;
D O I
10.1016/j.eneco.2014.06.001
中图分类号
F [经济];
学科分类号
02 ;
摘要
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. (C) 2014 Elsevier B.V. All rights reserved.
引用
收藏
页码:248 / 260
页数:13
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