An econometric analysis of emission allowances prices

Marc Paolella, Luca Taschini

Research output: Contribution to journalArticlepeer-review

Abstract

Knowledge of the statistical distribution of the prices of emission allowances, and their forecastability, are crucial in constructing, among other things, purchasing and risk management strategies in the emissions-constrained markets. This paper analyzes the two emission permits markets, CO2 in Europe, and SO2 in the US, and investigates a model for dealing with the unique stylized facts of this type of data. Its effectiveness in terms of model fit and out-of-sample value-at-risk-forecasting, as compared to models commonly used in risk-forecasting contexts, is demonstrated.
Original languageEnglish
Pages (from-to)2022-2032
Number of pages11
JournalJournal of Banking and Finance
Volume32
Issue number10
DOIs
Publication statusPublished - Oct 2008

Keywords / Materials (for Non-textual outputs)

  • emission allowances
  • GARCH
  • greenhouse gases
  • mixture models
  • value-at-risk

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