Abstract

https://ssrn.com/abstract=1763182
 
 

References (39)



 
 

Citations (1)



 


 



Equilibrium Price Dynamics of Emission Permits


Steffen Hitzemann


Ohio State University (OSU) - Department of Finance

Marliese Uhrig-Homburg


Karlsruhe Institute of Technology (KIT) - Institute for Finance

September 2014


Abstract:     
This paper presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today's cap-and-trade systems. We characterize emission permits as highly nonlinear contingent claims on economy-wide emissions and reveal their hybrid nature between investment and consumption assets. Our model makes predictions about the dynamics and volatility structure of emission permit prices, the futures price curve, and the implications for option pricing in this market. Empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives.

Number of Pages in PDF File: 47

Keywords: emission permits, spot and futures price dynamics, carbon derivatives

JEL Classification: G13, Q56, Q58, C61


Open PDF in Browser Download This Paper

Date posted: February 17, 2011 ; Last revised: April 30, 2015

Suggested Citation

Hitzemann, Steffen and Uhrig-Homburg, Marliese, Equilibrium Price Dynamics of Emission Permits (September 2014). Available at SSRN: https://ssrn.com/abstract=1763182 or http://dx.doi.org/10.2139/ssrn.1763182

Contact Information

Steffen Hitzemann (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

Marliese Uhrig-Homburg
Karlsruhe Institute of Technology (KIT) - Institute for Finance ( email )
P.O. Box 6980
D-76049 Karlsruhe, DE
Germany
+49 721 6084 8183 (Phone)
+49 721 6084 8190 (Fax)
HOME PAGE: http://derivate.fbv.kit.edu/english/index.php
Feedback to SSRN


Paper statistics
Abstract Views: 3,307
Downloads: 502
Download Rank: 41,511
References:  39
Citations:  1