Related papers: On fair pricing of emission-related derivatives
Emissions markets play a vital role in emissions reduction by incentivizing firms to minimize costs. However, their effectiveness heavily depends on the decisions of policymakers, future economic activity, and the availability of abatement…
We present a novel approach to the pricing of financial instruments in emission markets, for example, the EU ETS. The proposed structural model is positioned between existing complex full equilibrium models and pure reduced form models.…
Carbon pricing has become a central pillar of modern climate policy, with carbon taxes and emissions trading systems (ETS) serving as the two dominant approaches. Although economic theory suggests these instruments are equivalent under…
Alignment of financial market incentives and carbon emissions disincentives is key to limiting global warming. Regulators and standards bodies have made a start by requiring some carbon-related disclosures and proposing others. Here we go…
We develop a financial market model in which a large population of firms chooses dynamic emission strategies under climate transition risk, interacting with both environmentally concerned and neutral investors. Firms face a trade-off…
Existing emissions trading system (ETS) designs inhibit emissions but do not constrain warming to any fxed level, preventing certainty of the global path of warming. Instead, they have the indirect objective of reducing emissions. They…
Climate change and global warming are the significant challenges of the new century. A viable solution to mitigate greenhouse gas emissions is via a globally incentivized market mechanism proposed in the Kyoto protocol. In this view, the…
There is much disagreement concerning how best to control global carbon emissions. We explore quantitatively how different control schemes affect the collective emission dynamics of a population of emitting entities. We uncover a complex…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
We develop a method using parameterized linear equations to define trading mechanisms in market design models. Our method adeptly addresses challenges arising from factors such as complex endowments or coarse priorities, while offering…
We provide a theoretical framework to examine how carbon pricing policies influence inflation and to estimate the policy-driven impact on goods prices from achieving net-zero emissions. Firms control emissions by adjusting production,…
Expanding multi-country emissions trading system is considered as crucial to fill the existing mitigation gap for the 2\degree C climate target. Trustworthy emissions accounting is the cornerstone of such a system encompassing different…
Secondary markets and resale are integral components of all emission trading systems. Despite the justification for these secondary trades, such as unpredictable demand, they may encourage speculation and result in the misallocation of…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
The European Union Emission Trading Scheme is a carbon emission allowance trading system designed by Europe to achieve emission reduction targets. The amount of carbon emission caused by production activities is closely related to the…
This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and…
Despite much scientific evidence, a large fraction of the American public doubts that greenhouse gases are causing global warming. We present a simulation model as a computational test-bed for climate prediction markets. Traders adapt their…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the…
This paper introduces the concept of a global financial market for environmental indices, addressing sustainability concerns and aiming to attract institutional investors. Risk mitigation measures are implemented to manage inherent risks…