{"id":2754,"date":"2009-11-18T09:13:31","date_gmt":"2009-11-18T09:13:31","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=publication&p=2754"},"modified":"2024-08-19T14:33:37","modified_gmt":"2024-08-19T13:33:37","slug":"pricing-and-hedging-in-carbon-emission-markets","status":"publish","type":"publication","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/","title":{"rendered":"Pricing and hedging in carbon emission markets"},"content":{"rendered":"\n

Abstract<\/h2>\n

We propose a model for trading in emission allowances in the EU Emission Trading Scheme (ETS). Exploiting an arbitrage relationship we derive the spot prices of carbon allowances given a forward contract whose price is exogenous to the model. The modelling is done under the assumption of no banking of carbon allowances (which is valid during the Phase I of Kyoto protocol), however, we also discuss how the model can be extended when banking of permits is available. We employ results from filtering theory to derive the spot prices of permits and suggest hedging formulas using a local risk minimisation approach. We also consider the effect of intermediate announcements regarding the net position of the ETS zone on the prices and show that the jumps in the prices can be attributed to information release on the net position of the zone. We also provide a brief numerical simulation for the price processes of carbon allowances using our model to show the resemblance to the actual data.<\/p>\n

Reference<\/h3>\n

Cetin, U., and Verschuere, M. November 2009. Pricing and hedging in carbon emission markets<\/em>. International Journal of Theoretical and Applied Finance, v.12.<\/p>\n\n","protected":false},"excerpt":{"rendered":"\n

Abstract We propose a model for trading in emission allowances in the EU Emission Trading Scheme (ETS). Exploiting an arbitrage…<\/p>\n\n","protected":false},"author":43,"featured_media":0,"template":"","tags":[166,98],"publication-type":[436],"topic_area":[4694],"class_list":["post-2754","publication","type-publication","status-publish","hentry","tag-carbon-markets","tag-eu-ets","publication-type-research-articles","topic_area-policy-evaluation"],"acf":{"downloads":{"ref_value":"field_52f16cc1a80f2","value":false,"type":"repeater","post_type":""},"profile_link":{"ref_value":"field_52f164b5189e9","value":["pricing-and-hedging-in-carbon-emission-markets"],"type":"relationship","post_type":""},"article_link":{"ref_value":"field_52eee3c7f0586","value":"https:\/\/eprints.lse.ac.uk\/29321\/1\/Pricing_and_hedging_in_carbon_emissions_markets_(LSERO_version).pdf","type":false,"post_type":""},"article_link_title":{"ref_value":"field_5322399d89d42","value":"Pricing and hedging in carbon emissions","type":false,"post_type":""},"spotlight":{"ref_value":"field_52f80896506d3","value":"","type":false,"post_type":""},"exclude_from_sync":{"ref_value":"field_560538b0e7350","value":"0","type":false,"post_type":""},"rss_newsletter":{"ref_value":"field_54f5c2c1544d8","value":"","type":false,"post_type":""}},"yoast_head":"\nPricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Pricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment\" \/>\n<meta property=\"og:description\" content=\"Abstract We propose a model for trading in emission allowances in the EU Emission Trading Scheme (ETS). Exploiting an arbitrage...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/\" \/>\n<meta property=\"og:site_name\" content=\"Grantham Research Institute on climate change and the environment\" \/>\n<meta property=\"article:modified_time\" content=\"2024-08-19T13:33:37+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication\\\/pricing-and-hedging-in-carbon-emission-markets\\\/\",\"url\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication\\\/pricing-and-hedging-in-carbon-emission-markets\\\/\",\"name\":\"Pricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/#website\"},\"datePublished\":\"2009-11-18T09:13:31+00:00\",\"dateModified\":\"2024-08-19T13:33:37+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication\\\/pricing-and-hedging-in-carbon-emission-markets\\\/#breadcrumb\"},\"inLanguage\":\"en-GB\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication\\\/pricing-and-hedging-in-carbon-emission-markets\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication\\\/pricing-and-hedging-in-carbon-emission-markets\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Publications\",\"item\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/?post_type=publication\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"All research\",\"item\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication-type\\\/new-research\\\/\"},{\"@type\":\"ListItem\",\"position\":4,\"name\":\"Research article\",\"item\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/publication-type\\\/research-articles\\\/\"},{\"@type\":\"ListItem\",\"position\":5,\"name\":\"Pricing and hedging in carbon emission markets\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/#website\",\"url\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/\",\"name\":\"Grantham Research Institute on climate change and the environment\",\"description\":\"The Grantham Research Institute at LSE carries out world-class research on climate change and the environment.\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/www.lse.ac.uk\\\/granthaminstitute\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-GB\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Pricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/","og_locale":"en_GB","og_type":"article","og_title":"Pricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment","og_description":"Abstract We propose a model for trading in emission allowances in the EU Emission Trading Scheme (ETS). Exploiting an arbitrage...","og_url":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/","og_site_name":"Grantham Research Institute on climate change and the environment","article_modified_time":"2024-08-19T13:33:37+00:00","twitter_card":"summary_large_image","twitter_misc":{"Estimated reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/","url":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/","name":"Pricing and hedging in carbon emission markets - Grantham Research Institute on climate change and the environment","isPartOf":{"@id":"https:\/\/www.lse.ac.uk\/granthaminstitute\/#website"},"datePublished":"2009-11-18T09:13:31+00:00","dateModified":"2024-08-19T13:33:37+00:00","breadcrumb":{"@id":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/#breadcrumb"},"inLanguage":"en-GB","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/pricing-and-hedging-in-carbon-emission-markets\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.lse.ac.uk\/granthaminstitute\/"},{"@type":"ListItem","position":2,"name":"Publications","item":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=publication"},{"@type":"ListItem","position":3,"name":"All research","item":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication-type\/new-research\/"},{"@type":"ListItem","position":4,"name":"Research article","item":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication-type\/research-articles\/"},{"@type":"ListItem","position":5,"name":"Pricing and hedging in carbon emission markets"}]},{"@type":"WebSite","@id":"https:\/\/www.lse.ac.uk\/granthaminstitute\/#website","url":"https:\/\/www.lse.ac.uk\/granthaminstitute\/","name":"Grantham Research Institute on climate change and the environment","description":"The Grantham Research Institute at LSE carries out world-class research on climate change and the environment.","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-GB"}]}},"taxonomies":{"post_tag":["carbon markets","EU ETS"],"publication-type":["Research article"],"topic_area":["Policy evaluation"]},"_links":{"self":[{"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/publication\/2754","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/publication"}],"about":[{"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/types\/publication"}],"author":[{"embeddable":true,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/users\/43"}],"version-history":[{"count":1,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/publication\/2754\/revisions"}],"predecessor-version":[{"id":74536,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/publication\/2754\/revisions\/74536"}],"wp:attachment":[{"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/media?parent=2754"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/tags?post=2754"},{"taxonomy":"publication-type","embeddable":true,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/publication-type?post=2754"},{"taxonomy":"topic_area","embeddable":true,"href":"https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-json\/wp\/v2\/topic_area?post=2754"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}