2015
DOI: 10.1007/978-3-319-23425-0_14
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Pricing Options on EU ETS Certificates with a Time-Varying Market Price of Risk Model

Abstract: To price options on emission certificates reduced-form models have proved to be useful. We empirically analyse the performance of the model proposed in Carmona and Hinz [2] and Hinz [8]. As we find evidence for a time-varying market price of risk, we extend the Carmona-Hinz framework by introducing a bivariate pricing model. We show that the extended model is able to extract information on the market price of risk and evaluate its impact on the EUA options.

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Cited by 3 publications
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