|Title / Titel||The emission permits market: A Model in Discrete and Continuous Time|
|Abstract (PDF, 14 KB)|
|Summary / Zusammenfassung||For investors, project developers, traders and other stakeholders involved in carbon market transactions, there are a wide range of risks that vary in complexity but can all have a financial impact. This market encompasses both the generation of emission reductions (ERs) through project-based transaction and the trading of greenhouse gas (GHG) emission allowances such as those allocated under the EU Emissions Trading Scheme.
The aim of my project is to focus most on price and non-compliance risks implementing the opportune mathematical methods and developing techniques needed in this emerging field.
Why should we start focusing on the price risk firstly? Emission allowances influence, and are, in turn, influenced by the markets for natural gas, petroleum, power, fuel and weather derivatives. Carbons interaction with those related markets, some of which are not yet fully competitive, had an impact on prices in those markets. Business decisions begin to be made with the price of carbon as a criterion. Indeed the new carbon markets exerts a global influence on other parts of the economy and society at large. Moreover,
the increasing price volatility in carbon emission had significant impacts on values of European power companies as well as the stock price of other covered companies.
Indeed the price volatility of emission allowances highlights the importance to companies affected by both environmental programs, and to specialized traders, of developing an appropriate hedging strategy to manage the risk in such an emergent market.
Modeling of the dynamics of the emission permit price in the discrete (see publication with prof. Paolella) and continuous time is the first aim of my thesis. Other important aspects (such as hedging strategies, real option implications) will be taken into account along the research.
|Publications / Publikationen||Paolella, M. and Taschini, L. "An econometric analysis of emission trading allowances price"
Journal of Banking and Finance, forthcoming.Weitere Informationen
|Keywords / Suchbegriffe||Environmental finance, Option pricing, Real option, Mathematical finance, Tradable permits.|
|Project leadership and contacts /
Projektleitung und Kontakte
|Other links to external web pages||http://www.isb.uzh.ch/institut/staff/taschini.luca/|
|Funding source(s) /
|Universität Zürich (position pursuing an academic career), Others
University Research Priority Program (URPP): “Finance and Financial Markets”
|Duration of Project / Projektdauer||Aug 2006 to Nov 2008|