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Dynamic behavior of CO.sub.2 spot prices
- Source :
- Journal of Environmental Economics and Management. Sept, 2008, Vol. 56 Issue 2, p180, 15 p.
- Publication Year :
- 2008
-
Abstract
- To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jeem.2008.03.003 Byline: Jan Seifert, Marliese Uhrig-Homburg, Michael Wagner Keywords: CO.sub.2 emission certificates; Emission trading; Spot price process; Stochastic optimal control Abstract: CO.sub.2 emission allowances are traded nowadays over the counter (OTC) and on exchanges across the European Union (EU). It thus becomes increasingly important for traders of these emission certificates to have a valid CO.sub.2 spot price model to value potential derivatives. In addition, CO.sub.2-emitting companies require an adequate CO.sub.2 spot price model in order to better assess their production costs and support emissions-related investment decisions. However, sufficient price history is still lacking for the European Union emission trading scheme (EU ETS). We therefore present a tractable stochastic equilibrium model reflecting stylized features of the EU ETS and analyze the resulting CO.sub.2 spot price dynamics. Our main findings are that CO.sub.2 prices do not have to follow any seasonal patterns, discounted prices should possess the martingale property, and an adequate CO.sub.2 price process should exhibit a time- and price-dependent volatility structure. A brief empirical examination regarding market efficiency complements our analysis. Author Affiliation: Lehrstuhl fur Financial Engineering und Derivate, Universitat Karlsruhe (TH), Postfach 6980, D-76128 Karlsruhe, Germany Article History: Received 23 February 2007
- Subjects :
- Spot market
Economics
Environmental services industry
Subjects
Details
- Language :
- English
- ISSN :
- 00950696
- Volume :
- 56
- Issue :
- 2
- Database :
- Gale General OneFile
- Journal :
- Journal of Environmental Economics and Management
- Publication Type :
- Academic Journal
- Accession number :
- edsgcl.184270669