Derivative pricing and hedging on carbon market

Dominique Guegan (1, 2) , Marius-Cristian Frunza (2, 3)

1 PSE - Paris School of Economics
2 CES - Centre d'économie de la Sorbonne
3 Sagacarbon

The aim of this work is to bring an econometric approach upon the CO2 market. We identify the specificities of this market, and analyze the carbon as a commodity. We investigate the econometric particularities of CO2 prices behavior and their result of the calibration. We apprehend and explain the reasons of the non-Gaussian behavior of this market focusing mainly upon jump diffusions and generalized hyperbolic distributions. These models are used for pricing and hedging of carbon options. We estimate the pricing accuracy of each model and the capacity to provide an efficient dynamic hedging.

Mots clés: swap; swap.; EUA; CER; Normal Inverse Gaussian; Carbon

Domaines: Economies et finances; Gestion et management; Méthodes et statistiques; Probabilités [math.PR]; Statistiques [math.ST]; Théorie [stat.TH]

Dominique Guegan, Marius-Cristian Frunza. Derivative pricing and hedging on carbon market. 2009 International Conference on Computer and Development, Kota Kinanalu (Malaysia), pp.130-133, 2009. ⟨halshs-00755510⟩