Options introduction and volatility in the EU ETS

Abstract

To improve risk management in the European

Dynamic Conditional Correlation between Electricity, Energy (Commodity) and Financial Markets during the Financial Crisis in Greece

“…To detect autocorrelations in the returns we have used the Ljung-Box or Q statistic. From table 4 also, we see that all returns show signs of statistically significant autocorrelation, and only the Greek Government Bond (gbonds) show the opposite (the Q(20) and Q 2(20) statistics are less than 31.41, p-value=1000). The strongest autocorrelation is in ase, smp, load and ngas returns (with Q(20) statistics 265.22, 265, 183.9 and 188.5 respectively).…”

Decision and Performance Analysis of a Price-Setting Manufacturer with Options under a Flexible-Cap Emission Trading Scheme (ETS)

“…Previous empirical literature has primarily focused on the influences of the introduction of an option contract on the performance of the ETS, such as the study by Chevallier, Le Pen and Sévi [5], with minimal consideration of the player's benefits that are achievable through option contracts under the emission restrictions. The present study fills this gap by incorporating a call option contract to jointly determine the emission ordering and product pricing decisions under the ETS system.…”

“…Emission price volatility threatens the final consumer surplus that a manufacturer can achieve in the tradable permit market. This volatility was regarded as the primary ETS-related risk for industries by Chevallier, et al [5]. Fortunately, the volatility can be effectively hedged by taking advantage of financial instruments, such as options.…”

On the Modeling of CO2 EUA and CER Prices of EU‐ETS for the 2008–2012 Period

“…Although histograms and the autocorrelation functions visually indicate reasonably good fit of the fBm model, the formal Jarque-Bera [37] test for the normality of the residuals is rejected (p-value <2. [2][3][4][5][6][7][8][9][10][11][12][13][14][15][16] for both the EUA and CER data. This may be attributed to a slight leptokurtic behavior of the residual histogram with a higher peak in the center and relatively thick on the tails compared with normal.…”

“…Similar observations are made by Bierbrauer et al [14] for energy prices. Chevallier et al [15] use GARCH models to study the impact of options mechanisms to the stability of the market and conclude that the options do not have much of an impact on the volatility of the market. Borak et al [16] analyze the volatility and correlations of the spot prices of EUA's and observe that the prices follow a different pattern in later stages.…”