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政大典藏 > College of Commerce > Department of Money and Banking > Periodical Articles > Item 140.119/79626

Please use this identifier to cite or link to this item: https://nccur.lib.nccu.edu.tw/handle/140.119/79626

Title:	Pricing derivatives with modeling CO2 emission allowance using a regime-switching jump diffusion model: with regime-switching risk premium
Authors:	Li, Chang-Yi;Chen, Son-Nan;Lin, Shih-Kuei 林士貴
Contributors:	金融學系
Keywords:	European Union Allowance;Esscher transform;jump diffusion model;Black`s formula
Date:	2015
Issue Date:	2015-12-10 16:16:09 (UTC+8)
Abstract:	Carbon markets trade the spot European Union Allowance (EUA), with one EUA providing the right to emit one tone of carbon dioxide (CO2). We examine the spot EUA returns in BlueNext that exhibit jumps and a volatility clustering feature. We propose a regime-switching jump diffusion model (RSJM) with a hidden Markov chain to capture not only a volatility clustering feature, but also the dynamics of the spot EUA returns that are influenced by change in the CO2 emission economic conditions. In addition, the switching jump intensities of the RSJM are shown to be affected by change in the carbon-market macroeconomic environment. We further derive the theoretical futures-option prices with a constant convenience yield under the RSJM via the generalized Esscher transform where regime-switching risk is priced with a risk premium. The empirical study shows that the derived futures-option pricing model under the RSJM with regime-switching risk is a more complete model than a jump diffusion model for pricing CO2 options.
Relation:	The European Journal of Finance
Data Type:	article
DOI link:	http://dx.doi.org/10.1080/1351847X.2015.1050526
DOI:	10.1080/1351847X.2015.1050526
Appears in Collections:	[Department of Money and Banking] Periodical Articles

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