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On the Stochastic Properties of Carbon Futures Prices

Environmental & resource economics, 2014-05, Vol.58 (1), p.127-153 [Peer Reviewed Journal]

Springer Science+Business Media Dordrecht 2013 ;Springer Science+Business Media Dordrecht 2014 ;ISSN: 0924-6460 ;EISSN: 1573-1502 ;DOI: 10.1007/s10640-013-9695-2

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Title:
On the Stochastic Properties of Carbon Futures Prices
Author: Chevallier, Julien ; Sévi, Benoît
Subjects: Carbon ; Carbon emissions ; Carbon offsets ; Cost control ; Economic Policy ; Economics ; Economics and Finance ; Emissions trading ; Environmental Economics ; Environmental Law/Policy/Ecojustice ; Environmental Management ; Futures ; Hedging ; Hypotheses ; Institutionalism ; Prices ; Pricing ; Stochastic models ; Stochastic processes ; Studies ; Valuation
Is Part Of: Environmental & resource economics, 2014-05, Vol.58 (1), p.127-153
Description: Pricing carbon is a central concern in environmental economics, due to the worldwide importance of emissions trading schemes to regulate pollution. This paper documents the presence of small and large jumps in the stochastic process of the CO 2 futures price. The large jumps have a discrete origin, i.e. they can arise from various demand factors or institutional decisions on the tradable permits market. Contrary to the existing literature, we show that the stochastic process of carbon futures prices does not contain a continuous component (Brownian motion). The results are derived by using high-frequency data in the activity signature function framework (Todorov and Tauchen in J Econom 154:125–138, 2010 ; Todorov and Tauchen in J Bus Econ Stat 29:356–371, 2011 ). The implication is that the carbon futures price should be modeled as an appropriately sampled, centered Lévy or Poisson process. The pure-jump behavior of the carbon price might be explained by the lower volume of trades on this allowance market (compared to other highly liquid financial markets).
Publisher: Dordrecht: Springer Netherlands
Language: English
Identifier: ISSN: 0924-6460
EISSN: 1573-1502
DOI: 10.1007/s10640-013-9695-2
Source: Alma/SFX Local Collection
ProQuest Central

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On the Stochastic Properties of Carbon Futures Prices

Springer Science+Business Media Dordrecht 2013 ;Springer Science+Business Media Dordrecht 2014 ;ISSN: 0924-6460 ;EISSN: 1573-1502 ;DOI: 10.1007/s10640-013-9695-2

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